Episode 154: Insights from a Theory of Entangled Political Economy (with Richard E. Wagner)

Episode 154: Insights from a Theory of Entangled Political Economy (with Richard E. Wagner)


Trevor Burrus: Welcome to Free Thoughts from
Libertarianism.org and the Cato Institute. I’m Trevor Burrus. Aaron Ross Powell: And I’m Aaron Powell. Trevor Burrus: Joining us today is Richard
E. Wagner, the Hobart L. Harris Professor of Economics at George Mason University. His new book is Politics as a Peculiar Business:
Insight from a Theory of Entangled Political Economy. Welcome to Free Thoughts, Dr.Wagner. Richard Wagner: Well, thank you for inviting
me. I’m delighted to be here. Trevor Burrus: I often start by asking authors
a question about the title. But your title is very, very mixed up with
the background within your writing, the background of Virginia political economy and just classical
economics. So before we get to what a peculiar business
is or even a theory of entangled political economy, that maybe we can sort of set the
scene with the prior literature as you do in the book and just start off talking about
public choice in the Virginia School and what that is and how that’s a background to what
your book is adding to it. Richard Wagner: Well, this book is a continuation
of lines of thought I had been developing probably for about 15 years where I came to
realize that so much theory in economics and political economy has a government as an entity
that is apart from and stands outside of what we call a “market economy” and intervenes
into it. So it’s like a mechanic. If an economy is like an engine or a machine,
a government is like a mechanic. So it comes in and repairs and keeps the machine
working. In contrast, I have been working with the
idea that an economy is nothing like a machine. It’s rather like a coral reef or a tropical
rainforest, rich in ecology of different kinds of entities or to use an image I’ve used
in a number of cases including in this book is that the standard economic theory analogizes
a society to a parade. A parade can have 5000 members. But you can take that parade and reduce it
to a little point on a map and watch it as it goes alone. In contrast, I analogize a society to a crowd
of pedestrians, maybe 100,000 people spilling out of a stadium after a game, where you would
not begin to think of that as like a parade. Now someone might say it’s an unruly parade
and needs to be tamed and that’s where policy might come in. But if you think about it, it’s a social
process that works well. People all get to their destinations pretty
much as they planned. But what accounts for the order of the pedestrian
crowd has nothing to do with what accounts for the order of the parade. For the parade, the order is based upon the
marching abilities of the band members, the organizational abilities of the conductor
and so forth. Whereas for the pedestrian crowd, it’s based
on such things as recognizing – we’re not like bumper cars. We don’t like to really collide into other
people and we have ways of recognizing where people are heading, how to – in turn how
to increase or decrease our speed. So you can have people going every which way
and it all works. So that scheme of thought has been with me
for a good 15 years and trying to lay this out in a variety of books and articles now. Trevor Burrus: Well, you have an interesting
line as you put it in the context of the Virginia School as I mentioned and the Adam Smith,
Carl Menger line of thinking. But kind of going to the parade crowd analogy
of the line where you say that the distinction between different types of economists is based
on the accounts different economists give for the observed orderliness of society. It’s what seems to be – some economists
seem to think it’s more like a parade and that the government – and then you have
the entanglement part. The government is – can come in and just
direct it and they’re separate entities. But that’s wrong you would say and like
a Samuelson kind of situation. Richard Wagner: No, I do think it’s a wrong-headed
way of conceiving of economies and societies. Trevor Burrus: And also governments though,
as governments too. Richard Wagner: Yeah, as governments, as part
of that. I think of governments as existing within
societies just as businesses do. That’s the idea of government doesn’t
kill your business. It is a business that people invest in politicians
and political parties. People are in their livelihoods and political
parties. Candidates advertise all over the place that
– it has many of the features of business, but it’s a peculiar one because you really
can’t have any kind of market test for the claims that political candidates make. Aaron Ross Powell: Just out of curiosity,
why is that – that origin of the term “Virginia School”? Why is the Virginia School called the Virginia
School? Richard Wagner: That is a term that was first
used in – I think it was 1961. It could have been ’60 or ’62. But I believe it was ’61 where the University
of Virginia had assembled an extraordinary bunch of economists of James Buchanan, Ronald
Coase, Warren Nutter, Gordon Tullock and so forth and had a very distinctive approach
to economics and political economy and much more of an integrated approach to political
economy. In fact, what was – later became – called
the Thomas Jefferson Center for the Study of Political Economy was originally called
the Thomas Jefferson Center for the Study of Political Economy and Social Philosophy. There were people in the university administration
who disliked the highly classical liberal thrust that those people had and they attained
a consultant’s report on the Department of Economics that started off – said that
– quoting basically from memory, not accurately. But basically that this department is composed
of a large number of unusually gifted and creative people, but at the same time, the
program is way outside the mainstream of economics. And it really should be brought back into
the mainstream. And in that report, it used that there’s
a distinctive Virginia School of Political Economy taking shape here. So the result of that report, we had things
like the university wouldn’t match an offer to Ronald Coase from the University of Chicago,
who wouldn’t promote Gordon Tullock, who left the university. Buchanan left and the whole Virginia tradition
that was taking shape, there – with a different approach to political economy. It kind of exploded. Some of it regrouped in Blacksburg. It has now moved to Fairfax and the tradition
is kept alive and I think is growing. Trevor Burrus: And what’s distinct about
it? Because I think sometimes I hear people call
– we just talked about public choice theory. They call it the Chicago theory about – or
the different kind of public choice about Arrow’s theorem and things like this. What’s distinct about the Virginia School? Richard Wagner: What’s distinctive is how
you do economics or how you think of economics. A very shorthand expression or definition
of public choice is public choice is the application of economics to politics. Well and good. But that still raises the question of what
kind of economics, because there are different styles of doing economics, each of which will
lead to a different way of trying to bring politics into the rubric of economic theory. The most common form of economic theory still
and has been for a good century has been based upon notions of economic observations pertaining
to a system that’s in a state of equilibrium. That scheme of thought, if you think about
it, I think leads almost automatically to thinking of some outside observer as a mechanic,
who can then shift an economy from one state to another whereas within the Virginia tradition
– it goes back I think much more to classical economic modes of thinking like Adam Smith. Sees a society as a continual ongoing development
process that really isn’t adequately characterized by notions of equilibrium, but rather is more
fully concerned with how it is that a set of people who are occupying a relatively contained
geographical space can develop institutional procedures, practices, traditions and so forth,
that allow each of them to have a good amount of liberty to govern themselves, to determine
their own affairs and yet recognize that we all do live in close geographical proximity. So there has to be these – there is an inherent,
collective or political element to the living together. Aaron Ross Powell: So if you asked the man
on the street what economics is or what it would mean to talk about the economics or
something, they will – a lot of them will tend to say it has something to do with money
changing hands and goods and services being bought and sold and business companies, the
stock market maybe. So for those people, what would it – it
might sound confusing to say we should apply economic thinking to government because government
doesn’t have those things. These people aren’t – they’re not earning
money in the traditional sense by selling a product, their salaries or fixed by law. They’re not buying and selling things and
they’re intervening in that sort of stuff. But they look distinct from it. So when we talk about – thinking about the
state economically, is this a – do we have to think about economics differently than
that kind of man on the street view or how do we apply this? Richard Wagner: Yes, there are two different
ways in which economists have approached what economics is. One way is defined in terms of subject matter. So economics is the science that studies the
practice of business. That’s a very common, very conventional
study. Another definition of economics is that economics
isn’t the study of class of activity. But it’s the study of the entire range of
human activity that pertains to intentional action. So you could say as a basic principle of people,
in whatever they undertake to do intentionally, seek to do it better rather than poorer, seek
to be successful rather than seek to fail, and that kind of principle of economizing
action where all actions – we face choices, where we accept and do some things, reject
other things, that that kind of economizing principle where it can be brought to bear
on just practically everything and the challenge then for economic thinking is to develop those
schemes of thought in ways that prove interesting and useful to other people. Trevor Burrus: That’s why you’re kind
of hostile to this aggregation element that you describe. There’s a section called a – I think it’s
called Politics is a Shell Game. But you seem very hostile to an equilibrium,
like a number, whether it’s an interest rate or some sort of average and how that’s
supposed to describe society, where actually that emerges from the kind of behavior – you
were talking about every individual choice and you kind of have it graphed in the book. It’s nodes and people making decisions. But you might – on average might emerge
from that. But if you look at the average, you’re missing
something. It’s sort of the way you put it. Richard Wagner: You always can construct averages. Take any set of numbers. You can find an average for that. That point in the book was an argument about
the relation between what we call macroeconomics and microeconomics. But most macro economists reason in terms
of one kind of arrogant variable acting on another. So you might say that an increase in education
in a society increases economic growth perhaps. It might be one possibility. I don’t object to that as a statistical
observation. But what I would say is that takes attention
away from where the action really is. That is if you really – like if you believe
– go back to these – to change the example, go back to these macro stimulus kinds of notions. Suppose you say, well, it would be beneficial
to spend $100 billion, the government to do that. You know, make it a trillion. Make it more interesting. [Crosstalk] Richard Wagner: It would be beneficial to
spend a trillion. Well, if you articulate that belief, if you
believe the macro story, that would say, well, you don’t care – you shouldn’t care
who spends it. You propose it and let someone else say how
to spend it because what that model says, what matters is getting the spending up. Where I think no one of course would do that
and the fact they wouldn’t say what’s important is the underneath kind of patterns
of spending. You go back to this example I mentioned a
moment ago about growth and education. Well, does it matter what kinds of programs,
educational programs are supported? Does it matter what kinds of educational organizations
receive the support? Does it matter who it is that makes those
decisions, whether it be public school, bureaucrats or our parents? If you think those things are important, those
are ignored by the macro kinds of formulations. But yet I think it’s those things that are
important. What I mean by then a policy is a shell game
is that that’s to the extent that the debate takes place on the level of these aggregate
kinds of variables. It loses sight of what it is that’s really
important in generating the kinds of things we really should be looking at. Trevor Burrus: This idea of government as
outside of the market and not bound by the kind of messiness of the market is pretty
pervasive. I mean you’ve got – so you’ve got the
– kind of sophisticated academic version of – you mentioned of seeing the government
as the mechanic working on the engine. But you also see it more at the folk level
whenever – you know, whenever something bad happens and there’s a response. There ought to be a law. This idea that – we’ve identified some
problem. We can just kind of say that government should
fix it and then government will fix it. So can you give an example of how thinking
about government economically, of applying economic thinking and analysis to government
might lead us to conclusions and understanding that runs against what we might expect from
this government as external and as a kind of perfect actor? Like what this might – applying this might
look like in practice. Richard Wagner: Well, first of all, I think
one of the concerns I’ve had and interest I had in – not just writing this book but
some of the preceding ones is a recognition that we all operate with certain kinds of
thought patterns in our head. Those thought patterns go a long way towards
framing the way we think about things and that influences the conclusions we reach. I think the image of politics as a source
of mechanics who fix what goes wrong in the private market is an image that has been cultivated
for a long time. It’s an image that’s supported by the
predominance of economic theory. The theory of economic equilibrium very much
supports that image. What I’ve been trying to do and will be
doing for quite some time is to try to set forth and develop some of the intellectual
tools that carries forward this alternative ecological kind of image where – there are
many people – for instance on this point. You know, Adam Smith long ago made this famous
image about a chessboard and how so many politicians look upon the chessboard and think they can
rearrange it. Again, that fits with the image of equilibrium
theory. You look at a chessboard and you look over
it and say, “Oh, black’s position is hopeless. So let’s move three of the pieces around
and make it an even game again.” But what happens if those pieces have minds
of their own? So they can talk back. Like if they – if the chessboard image was
accurate, I think the use of so-called illegal drugs would have vanished ages ago because
people have minds of their own and just because some political officials say that they’re
going to harass and arrest people if they kept using them isn’t going to stop it. It’s going to change the channels of commerce
that they pursue and it’s that kind of idea that I’m trying to incorporate into this
ecological motif and saying then that good societies aren’t simple matters of a set
of politically-designated officials keeping the machine repaired. But it’s much more of a self-governing kind
of interactive process that we have to tend to and think about. I think there’s much, much work that really
remains to be done truly in understanding how these self-governing social processes
work. Trevor Burrus: Well, maybe that’s a really
good example on Aaron’s question about illegal drugs. I mean there seems to be an entanglement. The way of thinking about how to look at markets
for illegal drugs is not to think about that the government comes along and makes drugs
illegal by just waving a magic wand and therefore – I mean there – or makes them disappear. I mean they’re made illegal but it makes
them disappear by making them illegal. All they do is change the interaction between
certain entities under certain conditions and prefer some people over other people. I mean that’s something you do really good
in the book is you do the job – of being like if you’re in an illegal regime, you
might be a good businessman because you are good at promoting your product. But if it becomes illegal, then different
people are better at selling it. That’s the entanglement, the enforcement
mechanism of the government with the market mechanism of the drugs. It just changes it. It doesn’t make anything happen. That’s the honest way to do political economy. Is that accurate would you say? Richard Wagner: Yes, I would. I think it’s – you go back to square one. What we observe are people. People have connections or relationships with
other people. Some of those people go into political activities,
some into commercial activities. They all occupy the same kind of society and
the – I think questions become one of, “What principles might govern the relationships
among the members of society?” If you go back, it was in the late 19th century. There was a British jurist named Henry Maine. I’m confusing him with Henry Manne. It goes back to Henry Maine. Trevor Burrus: Ancient Law. Richard Wagner: Ancient Law. Trevor Burrus: 1861. Richard Wagner: 1861. And one of the formulations he hid in there
was the claim that the – to date the – the character of what you can call progressive
societies was a movement from relationships based on status to relationships based on
contract. Now towards the end of his life, even he was
musing a bit about whether that was reversing. But if you look now, that – I think what
we found increasingly throughout the progressivist period actually has been a resurgence of relationships
based on status or feudal type of relationships. I think that’s a – we’re finding an
assertion perhaps of a new kind of feudalism growing as against a society grounded fundamentally
in liberty. I think if you want to try to fight or counteract
that, one of the challenges to understand the sources by which a free society might
end up re-feudalizing which I think has been happening. If you look at the kinds of relationships
where status based on age, race, gender, whatever, creates certain patterns of rights and obligations
and duties outside of what do people do through private ordering. Where there with freedom of association in
private ordering, you would again find a rich variety of kinds of social formations. But they would be generated through people’s
uses of their freedom to find associations that they regard as beneficial. I happen to think – the normative side of
me happens to think that’s a desirable quality of a society rather than – I know you saw
Downtown Abbey or those related things. But sure, it’s far better to be born upstairs
than to be in a downstairs occupation. But on the whole, I think that’s a scheme
of life that we should be thankful to have left behind. Aaron Ross Powell: If the lesson from thinking
– from applying economic thinking and recognizing the economics in government action is that
– either it’s going to – the government intervening is going to not have a desired
effect because people are simply going to route around it. They’re going to figure out alternate ways
to do what they were already doing. They might be slightly more expensive or less
efficient. But they’re still going to do it just like
– so like drugs. People are still taking them and still buying
and selling them. Or it’s going to – and/or it’s going
to screw things up because it’s going to create these different sets of rights and
obligations that are incompatible with liberty or going to make us worse off or whatever
else. Then does that mean that there – what does
that say about the role of the state? Should there be no government intervention
then? Is that the lesson of thinking economically
about the state or is there still a role for it in intervening in economy? We just need to do a smarter job of it. Richard Wagner: About that, I would say two
things. One is I would say there’s probably nothing
that can’t be handled through private ordering. So I think in that respect, I would qualify
myself as – in principle, a philosophical anarchist in that respect, in that – take
any kind of allegation about public goods, externality and so forth. Every such allegation implies a situation
where there are games from trade, from working out a way of avoiding that situation. Now, how do you work that out? It might be difficult. It might be costly. But still as a starting point, that kind of
situation implies games in trade. If so, that would suggest that a – you know,
for instance, this goes back to a long ago article that Ronald Coase wrote about lighthouses,
that the standard public goods claim is that you can’t get lighthouses provided and Coase
went and looked and there were all kinds of instances of lighthouses provided through
private contracting. Somewhere claims were once upon a time made
about well, bees buzz around and pollinate crops and you can’t – you won’t get
enough bee pollination. But Steven Cheung wrote a beautiful piece
explaining that – exactly how beekeepers form contracts with both apple growers, clover
field owners and so forth and developed a nice set of contracts that led to honey being
produced, apples being pollinated and human ingenuity is wonderfully creative. But there’s another side to I think human
nature as well, which is the ability to convince one’s self. If someone in the losing end of the deal can
easily convince him or herself that he shouldn’t have lost. So if you have five people in – undertaking
different commercial investments. Two are successful. Three are not. So those three liquidate. They may – just, OK, well, I’ve liquidated
my business. Now I either go work for someone else or I
develop a new business. That’s one strategy. Another kind of strategy is to sign up with
some regulatory agency, some politician, to get a grant program for new enterprises by
people whose previous enterprises went under, or alternatively, as often the case of many
of the actions filed, whether it be for a Federal Trade Commission, a justice department
and so forth, are actions that are filed by people claiming an unfair – they have lost
unfairly by actions of successful competitors. So that is also a natural kind of feature
of human action. Trevor Burrus: So when you think about what
government might be needed for, you should be thinking about that people won’t game
the system like that? Is that – at the very least? Richard Wagner: If you’re going to want
to develop an explanation, to give an explanatory account of what we observe, going on the world
around us, that means we have to read social life not through some kind of rose-colored
glasses about liberalism, private property, and so forth. But try to read them through what I would
call realistic glasses. That – and if so, what are the challenges? I cite this in the book. That at the time of the American Constitutional
Convention, the story goes that a woman asked Benjamin Franklin on leaving what kind of
a government the convention have established. Franklin was reported to have responded, “A
republic, if you can keep it.” Now that shows a couple of things about Franklin’s
thinking, I believe. One is he thought in evolutionary or developmental
terms that says you have it today. It doesn’t mean you’re going to keep it. That’s to be worked out. In many respects, we have moved in more – in
a futile-like direction compared to what we had then. It doesn’t mean that futile life is nasty,
brutish and short. It can be decently well. People downstairs in Downtown Abbey all got
to sit down and have supper and so on and so forth. But it’s not a life where you’re free
to aspire to something beyond your status and I think that the ability to aspire to
something, to look forward to something, to live for something, I think is an important
feature that liberal types of orders bring out more fully than other types of orders. But this still brings you back to the explanatory
issue. What are the problems that liberal kinds of
orders then face internally? That might operate to undermine them or at
least to move them in non-liberal directions. Trevor Burrus: Well, if we’re going to get
away from equilibrium, would it be accurate to say you’re against equilibrium? I mean it’s a weird thing to be against. But you’re against it in misuse of equilibrium. Would that be a better way of putting it? Richard Wagner: Misuse, not against. Yeah, I think equilibrium is a perfectly good
notion to apply to individual action. It means because every – one of us in any
of our actions, here we are right now. We think of something we want to do over the
coming year. That means that we have some belief or some
notion about how our actions are going to play out and so that you might say is kind
of an equilibrium notion. But what I object to is that equilibrium notion
being extended to an entire society because that gets you from a – moves you away from
a pedestrian crowd into a marching band and I think in the pedestrian crowd, each individual
– or groups of individuals have particular destinations they’re heading to, leaving
the stadium. But there is no common destination and the
important thing there is the ability of people to work that all out for themselves. So I want to – see, I want to have a scheme
of thought that allows the generation from inside a society of new products, new ideas,
continual change. So to have that I think means that one person’s
plans two years from now might be challenged because someone else has developed a new product
that’s going to take away business. I think it – that means that the picture
of a free society you’re going to have is going to be one of commotion, of fluidity,
which in turn means that people need to develop various kinds of measures for – on the one
hand, taking advantage of that fluidity, but also to some extent protecting themselves
like insurance. But it doesn’t mean it has to be public-provided
social insurance and so forth. Trevor Burrus: So it seems – in that sense
of equilibrium – I see your book is sort of doing three – like three things. The steps are take the aggregation element
and blow it up. Understand it’s detailed. Let’s open it up and get inside and understand
it’s a bunch of people together for government and for the market. They’re actually – like CSI. Enhance, enhance, enhance and you figure out
that the equilibrium point is actually – or the interest rate is just a bunch of individual
decisions. But also within government, the government
is not a single thing and the market is not a single thing. Then also to realize that they’re not totally
separate. So there’s a bunch of integrated parts behaving
in a creative systems kind of way, that – in government and in the market and they’re
not totally separate. They’re actually intermixed or they’re
tangled. It’s sort of – you’re kind of pleaded
in. Like if you’re going to do honest political
economy, you need to realize these basic points. Would that be an accurate characterization? Richard Wagner: No, it’s certainly a characterization
that I would accept and would embrace. I think it’s – I would also – speaking
of these separate systems or subsystems – I would say there’s one system that’s like
society in which we live and that society if you look at it, then is composed of various
kinds of subsystems, of businesses, governments. There are many points of commonality between
political enterprises and market enterprises. One of the things I wanted to get across in
that book is that so much thinking runs in terms of government construed as a unitary
enterprise. Trevor Burrus: The state. Richard Wagner: A state, a single – all
embodied in a head person who makes choices and moves things around. What I had been working – trying to work
out is the idea that – well, government – use the plural. Governments – we have a system of governments,
which are kinds of orders. in fact, Gordon Tullock in Politics of Bureaucracy
once coined the term “bureaucratic free enterprise”. What he meant by bureaucratic free enterprise
is that no one really controlled big, modern bureaus. There are all kinds of fiefdoms within a bureau,
different kinds of agents and sub-agencies pursuing their desires, their interests. So it was a – Tullock didn’t use the term
but I think Tullock would agree that it was – bureaucracy was a very peculiar set of
firms or enterprises and that’s what I’m trying to get across is that it’s peculiar. But being peculiar I think means that within
some of these ideas about networks says these things can morph you might say. If you have a relatively small number of these
peculiar enterprises within a large sea of private enterprise, that’s going to be – that
kind of a system is going to have different properties than one, if you have a large number
of politically-based enterprises, perhaps more or less on par with the market-based
enterprises. That’s why for instance you take things
like the recession or so-called of 2008. Well, you don’t have any such thing as privately-ordered
credit markets anymore. In a privately-ordered credit market, someone
wants to get a loan. Someone has the capital to make a loan. They can work out a deal. If the lender doesn’t want to lend, the
borrower can come back with a promise of higher interest, better collateral. But the total credit market is simply the
product of the various efforts of people to make deals. But now, with various kinds of regulations
and so forth, that we have various kinds of rules that lenders have to have, that display
portfolios that show the right kinds of distributions in terms of age, gender, geography, race and
so on and so forth and which I think through that means that there are going to be some
loans made in particular cases that knowingly in – under private ordering wouldn’t have
been made and would have been thought to be bad business and other loans that might have
been thought to be good business under private ordering, won’t be made under public ordering
because they’re squeezed out. So what that suggests to me is you’re going
to end up with a system that’s going to have built in a greater amount of built-in
volatility than it otherwise would have had. But that … Trevor Burrus: And that’s an entangled enterprise. Richard Wagner: That’s an entanglement. Then the idea of entanglement. I mean I don’t believe in really borrowing
directly from the natural sciences but there is this notion of quantum entanglement that
you can’t locate position on one particle without making reference to some other particle. That’s as close as I come to an analogy
but – what I mean by entanglement is if you look at textbooks on economics, they’re
either a firm that says, well, a firm looks at – it adjusts its inputs and its prices
to a form of production strategy to maximize its profit or its wealth. But if you look at the subject matter that
firms – especially large ones – are going – part of their doing business is going
to involve political grants, political exceptions and so forth and that’s why the big location
for trade associations now has shifted from New York to Washington and why so many chief
executives now travel here on business on a regular basis. It’s not because there’s any – not because
of inputs as we understand them normally or produced here but yet important inputs are. That’s what I mean by entanglement. At the same time that politicians also crave
support from businesses in various ways that can provide things, and that’s what I mean
by – entanglement has always been with us. I cite a book by – he’s deceased now. But a wonderful economic historian Jonathan
Hughes called the Governmental Habit and Hughes looked at the economic controls in colonial
America and they were still there but just on a much smaller scale than what they are
now. So that’s why I think entanglement will
always be with us. I think it’s part of human nature so to
speak. But I think in – what I want to try to explain
here is that entanglement can’t be eliminated. It’s part of human nature. At the same time, it can become so densely
entangled where the values of the political infuse themselves into the values of the market. The values of the market infuse themselves
into the political. There’s a wonderful book. I’ve been suggesting too many books I guess
in this interview. But that’s what an academic does. It’s a wonderful book by a woman, Jane Jacobs. She too is deceased now. But she had a book called Systems of Survival
and what she laid out I think is wonderful. It’s that a well-working society requires
an interaction between two types of moral syndromes, which she called a commercial syndrome
and a guardian syndrome. She also coined the term “monstrous moral
hybrids” to refer to what happens when commercial people get involved in politics and guardian
people get involved in markets. Trevor Burrus: Welcome to Free Thoughts from
Libertarianism.org and the Cato Institute. I’m Trevor Burrus. Aaron Ross Powell: And I’m Aaron Powell. Trevor Burrus: Joining us today is Richard
E. Wagner, the Hobart L. Harris Professor of Economics at George Mason University. His
new book is Politics as a Peculiar Business: Insight from a Theory of Entangled Political
Economy. Welcome to Free Thoughts, Dr.Wagner. Richard Wagner: Well, thank you for inviting
me. I’m delighted to be here. Trevor Burrus: I often start by asking authors
a question about the title. But your title is very, very mixed up with the background
within your writing, the background of Virginia political economy and just classical economics.
So before we get to what a peculiar business is or even a theory of entangled political
economy, that maybe we can sort of set the scene with the prior literature as you do
in the book and just start off talking about public choice in the Virginia School and what
that is and how that’s a background to what your book is adding to it. Richard Wagner: Well, this book is a continuation
of lines of thought I had been developing probably for about 15 years where I came to
realize that so much theory in economics and political economy has a government as an entity
that is apart from and stands outside of what we call a “market economy” and intervenes
into it. So it’s like a mechanic. If an economy is
like an engine or a machine, a government is like a mechanic. So it comes in and repairs
and keeps the machine working. In contrast, I have been working with the idea that an
economy is nothing like a machine. It’s rather like a coral reef or a tropical rainforest,
rich in ecology of different kinds of entities or to use an image I’ve used in a number
of cases including in this book is that the standard economic theory analogizes a society
to a parade. A parade can have 5000 members. But you can
take that parade and reduce it to a little point on a map and watch it as it goes alone.
In contrast, I analogize a society to a crowd of pedestrians, maybe 100,000 people spilling
out of a stadium after a game, where you would not begin to think of that as like a parade. Now someone might say it’s an unruly parade
and needs to be tamed and that’s where policy might come in. But if you think about it,
it’s a social process that works well. People all get to their destinations pretty much
as they planned. But what accounts for the order of the pedestrian crowd has nothing
to do with what accounts for the order of the parade. For the parade, the order is based
upon the marching abilities of the band members, the organizational abilities of the conductor
and so forth. Whereas for the pedestrian crowd, it’s based on such things as recognizing
– we’re not like bumper cars. We don’t like to really collide into other people and
we have ways of recognizing where people are heading, how to – in turn how to increase
or decrease our speed. So you can have people going every which way
and it all works. So that scheme of thought has been with me for a good 15 years and trying
to lay this out in a variety of books and articles now. Trevor Burrus: Well, you have an interesting
line as you put it in the context of the Virginia School as I mentioned and the Adam Smith,
Carl Menger line of thinking. But kind of going to the parade crowd analogy of the line
where you say that the distinction between different types of economists is based on
the accounts different economists give for the observed orderliness of society. It’s
what seems to be – some economists seem to think it’s more like a parade and that
the government – and then you have the entanglement part. The government is – can come in and
just direct it and they’re separate entities. But that’s wrong you would say and like
a Samuelson kind of situation. Richard Wagner: No, I do think it’s a wrong-headed
way of conceiving of economies and societies. Trevor Burrus: And also governments though,
as governments too. Richard Wagner: Yeah, as governments, as part
of that. I think of governments as existing within societies just as businesses do. That’s
the idea of government doesn’t kill your business. It is a business that people invest
in politicians and political parties. People are in their livelihoods and political parties.
Candidates advertise all over the place that – it has many of the features of business,
but it’s a peculiar one because you really can’t have any kind of market test for the
claims that political candidates make. Aaron Ross Powell: Just out of curiosity,
why is that – that origin of the term “Virginia School”? Why is the Virginia School called
the Virginia School? Richard Wagner: That is a term that was first
used in – I think it was 1961. It could have been ’60 or ’62. But I believe it
was ’61 where the University of Virginia had assembled an extraordinary bunch of economists
of James Buchanan, Ronald Coase, Warren Nutter, Gordon Tullock and so forth and had a very
distinctive approach to economics and political economy and much more of an integrated approach
to political economy. In fact, what was – later became – called
the Thomas Jefferson Center for the Study of Political Economy was originally called
the Thomas Jefferson Center for the Study of Political Economy and Social Philosophy. There were people in the university administration
who disliked the highly classical liberal thrust that those people had and they attained
a consultant’s report on the Department of Economics that started off – said that
– quoting basically from memory, not accurately. But basically that this department is composed
of a large number of unusually gifted and creative people, but at the same time, the
program is way outside the mainstream of economics. And it really should be brought back into
the mainstream. And in that report, it used that there’s
a distinctive Virginia School of Political Economy taking shape here. So the result of
that report, we had things like the university wouldn’t match an offer to Ronald Coase
from the University of Chicago, who wouldn’t promote Gordon Tullock, who left the university.
Buchanan left and the whole Virginia tradition that was taking shape, there – with a different
approach to political economy. It kind of exploded. Some of it regrouped in Blacksburg.
It has now moved to Fairfax and the tradition is kept alive and I think is growing. Trevor Burrus: And what’s distinct about
it? Because I think sometimes I hear people call – we just talked about public choice
theory. They call it the Chicago theory about – or the different kind of public choice
about Arrow’s theorem and things like this. What’s distinct about the Virginia School? Richard Wagner: What’s distinctive is how
you do economics or how you think of economics. A very shorthand expression or definition
of public choice is public choice is the application of economics to politics. Well and good. But
that still raises the question of what kind of economics, because there are different
styles of doing economics, each of which will lead to a different way of trying to bring
politics into the rubric of economic theory. The most common form of economic theory still
and has been for a good century has been based upon notions of economic observations pertaining
to a system that’s in a state of equilibrium. That scheme of thought, if you think about
it, I think leads almost automatically to thinking of some outside observer as a mechanic,
who can then shift an economy from one state to another whereas within the Virginia tradition
– it goes back I think much more to classical economic modes of thinking like Adam Smith.
Sees a society as a continual ongoing development process that really isn’t adequately characterized
by notions of equilibrium, but rather is more fully concerned with how it is that a set
of people who are occupying a relatively contained geographical space can develop institutional
procedures, practices, traditions and so forth, that allow each of them to have a good amount
of liberty to govern themselves, to determine their own affairs and yet recognize that we
all do live in close geographical proximity. So there has to be these – there is an inherent,
collective or political element to the living together. Aaron Ross Powell: So if you asked the man
on the street what economics is or what it would mean to talk about the economics or
something, they will – a lot of them will tend to say it has something to do with money
changing hands and goods and services being bought and sold and business companies, the
stock market maybe. So for those people, what would it – it
might sound confusing to say we should apply economic thinking to government because government
doesn’t have those things. These people aren’t – they’re not earning money in
the traditional sense by selling a product, their salaries or fixed by law. They’re
not buying and selling things and they’re intervening in that sort of stuff. But they
look distinct from it. So when we talk about – thinking about the state economically,
is this a – do we have to think about economics differently than that kind of man on the street
view or how do we apply this? Richard Wagner: Yes, there are two different
ways in which economists have approached what economics is. One way is defined in terms
of subject matter. So economics is the science that studies the practice of business. That’s
a very common, very conventional study. Another definition of economics is that economics
isn’t the study of class of activity. But it’s the study of the entire range of human
activity that pertains to intentional action. So you could say as a basic principle of people,
in whatever they undertake to do intentionally, seek to do it better rather than poorer, seek
to be successful rather than seek to fail, and that kind of principle of economizing
action where all actions – we face choices, where we accept and do some things, reject
other things, that that kind of economizing principle where it can be brought to bear
on just practically everything and the challenge then for economic thinking is to develop those
schemes of thought in ways that prove interesting and useful to other people. Trevor Burrus: That’s why you’re kind
of hostile to this aggregation element that you describe. There’s a section called a
– I think it’s called Politics is a Shell Game. But you seem very hostile to an equilibrium,
like a number, whether it’s an interest rate or some sort of average and how that’s
supposed to describe society, where actually that emerges from the kind of behavior – you
were talking about every individual choice and you kind of have it graphed in the book.
It’s nodes and people making decisions. But you might – on average might emerge
from that. But if you look at the average, you’re missing something. It’s sort of
the way you put it. Richard Wagner: You always can construct averages.
Take any set of numbers. You can find an average for that. That point in the book was an argument
about the relation between what we call macroeconomics and microeconomics. But most macro economists
reason in terms of one kind of arrogant variable acting on another. So you might say that an
increase in education in a society increases economic growth perhaps. It might be one possibility. I don’t object to that as a statistical
observation. But what I would say is that takes attention away from where the action
really is. That is if you really – like if you believe – go back to these – to
change the example, go back to these macro stimulus kinds of notions. Suppose you say,
well, it would be beneficial to spend $100 billion, the government to do that. You know,
make it a trillion. Make it more interesting. [Crosstalk] Richard Wagner: It would be beneficial to
spend a trillion. Well, if you articulate that belief, if you believe the macro story,
that would say, well, you don’t care – you shouldn’t care who spends it. You propose
it and let someone else say how to spend it because what that model says, what matters
is getting the spending up. Where I think no one of course would do that and the fact
they wouldn’t say what’s important is the underneath kind of patterns of spending.
You go back to this example I mentioned a moment ago about growth and education. Well, does it matter what kinds of programs,
educational programs are supported? Does it matter what kinds of educational organizations
receive the support? Does it matter who it is that makes those decisions, whether it
be public school, bureaucrats or our parents? If you think those things are important, those
are ignored by the macro kinds of formulations. But yet I think it’s those things that are
important. What I mean by then a policy is a shell game is that that’s to the extent
that the debate takes place on the level of these aggregate kinds of variables. It loses
sight of what it is that’s really important in generating the kinds of things we really
should be looking at. Trevor Burrus: This idea of government as
outside of the market and not bound by the kind of messiness of the market is pretty
pervasive. I mean you’ve got – so you’ve got the – kind of sophisticated academic
version of – you mentioned of seeing the government as the mechanic working on the
engine. But you also see it more at the folk level
whenever – you know, whenever something bad happens and there’s a response. There
ought to be a law. This idea that – we’ve identified some problem. We can just kind
of say that government should fix it and then government will fix it. So can you give an example of how thinking
about government economically, of applying economic thinking and analysis to government
might lead us to conclusions and understanding that runs against what we might expect from
this government as external and as a kind of perfect actor? Like what this might – applying
this might look like in practice. Richard Wagner: Well, first of all, I think
one of the concerns I’ve had and interest I had in – not just writing this book but
some of the preceding ones is a recognition that we all operate with certain kinds of
thought patterns in our head. Those thought patterns go a long way towards framing the
way we think about things and that influences the conclusions we reach. I think the image
of politics as a source of mechanics who fix what goes wrong in the private market is an
image that has been cultivated for a long time. It’s an image that’s supported by
the predominance of economic theory. The theory of economic equilibrium very much supports
that image. What I’ve been trying to do and will be
doing for quite some time is to try to set forth and develop some of the intellectual
tools that carries forward this alternative ecological kind of image where – there are
many people – for instance on this point. You know, Adam Smith long ago made this famous
image about a chessboard and how so many politicians look upon the chessboard and think they can
rearrange it. Again, that fits with the image of equilibrium
theory. You look at a chessboard and you look over it and say, “Oh, black’s position
is hopeless. So let’s move three of the pieces around and make it an even game again.” But what happens if those pieces have minds
of their own? So they can talk back. Like if they – if the chessboard image was accurate,
I think the use of so-called illegal drugs would have vanished ages ago because people
have minds of their own and just because some political officials say that they’re going
to harass and arrest people if they kept using them isn’t going to stop it. It’s going
to change the channels of commerce that they pursue and it’s that kind of idea that I’m
trying to incorporate into this ecological motif and saying then that good societies
aren’t simple matters of a set of politically-designated officials keeping the machine repaired. But
it’s much more of a self-governing kind of interactive process that we have to tend
to and think about. I think there’s much, much work that really
remains to be done truly in understanding how these self-governing social processes
work. Trevor Burrus: Well, maybe that’s a really
good example on Aaron’s question about illegal drugs. I mean there seems to be an entanglement.
The way of thinking about how to look at markets for illegal drugs is not to think about that
the government comes along and makes drugs illegal by just waving a magic wand and therefore
– I mean there – or makes them disappear. I mean they’re made illegal but it makes
them disappear by making them illegal. All they do is change the interaction between
certain entities under certain conditions and prefer some people over other people. I mean that’s something you do really good
in the book is you do the job – of being like if you’re in an illegal regime, you
might be a good businessman because you are good at promoting your product. But if it
becomes illegal, then different people are better at selling it. That’s the entanglement,
the enforcement mechanism of the government with the market mechanism of the drugs. It
just changes it. It doesn’t make anything happen. That’s the honest way to do political
economy. Is that accurate would you say? Richard Wagner: Yes, I would. I think it’s
– you go back to square one. What we observe are people. People have connections or relationships
with other people. Some of those people go into political activities, some into commercial
activities. They all occupy the same kind of society and the – I think questions become
one of, “What principles might govern the relationships among the members of society?” If you go back, it was in the late 19th century.
There was a British jurist named Henry Maine. I’m confusing him with Henry Manne. It goes
back to Henry Maine. Trevor Burrus: Ancient Law. Richard Wagner: Ancient Law. Trevor Burrus: 1861. Richard Wagner: 1861. And one of the formulations
he hid in there was the claim that the – to date the – the character of what you can
call progressive societies was a movement from relationships based on status to relationships
based on contract. Now towards the end of his life, even he was
musing a bit about whether that was reversing. But if you look now, that – I think what
we found increasingly throughout the progressivist period actually has been a resurgence of relationships
based on status or feudal type of relationships. I think that’s a – we’re finding an
assertion perhaps of a new kind of feudalism growing as against a society grounded fundamentally
in liberty. I think if you want to try to fight or counteract
that, one of the challenges to understand the sources by which a free society might
end up re-feudalizing which I think has been happening. If you look at the kinds of relationships
where status based on age, race, gender, whatever, creates certain patterns of rights and obligations
and duties outside of what do people do through private ordering. Where there with freedom
of association in private ordering, you would again find a rich variety of kinds of social
formations. But they would be generated through people’s uses of their freedom to find associations
that they regard as beneficial. I happen to think – the normative side of
me happens to think that’s a desirable quality of a society rather than – I know you saw
Downtown Abbey or those related things. But sure, it’s far better to be born upstairs
than to be in a downstairs occupation. But on the whole, I think that’s a scheme of
life that we should be thankful to have left behind. Aaron Ross Powell: If the lesson from thinking
– from applying economic thinking and recognizing the economics in government action is that
– either it’s going to – the government intervening is going to not have a desired
effect because people are simply going to route around it. They’re going to figure
out alternate ways to do what they were already doing. They might be slightly more expensive
or less efficient. But they’re still going to do it just like – so like drugs. People
are still taking them and still buying and selling them. Or it’s going to – and/or
it’s going to screw things up because it’s going to create these different sets of rights
and obligations that are incompatible with liberty or going to make us worse off or whatever
else. Then does that mean that there – what does
that say about the role of the state? Should there be no government intervention then?
Is that the lesson of thinking economically about the state or is there still a role for
it in intervening in economy? We just need to do a smarter job of it. Richard Wagner: About that, I would say two
things. One is I would say there’s probably nothing that can’t be handled through private
ordering. So I think in that respect, I would qualify myself as – in principle, a philosophical
anarchist in that respect, in that – take any kind of allegation about public goods,
externality and so forth. Every such allegation implies a situation where there are games
from trade, from working out a way of avoiding that situation. Now, how do you work that out? It might be
difficult. It might be costly. But still as a starting point, that kind of situation implies
games in trade. If so, that would suggest that a – you know, for instance, this goes
back to a long ago article that Ronald Coase wrote about lighthouses, that the standard
public goods claim is that you can’t get lighthouses provided and Coase went and looked
and there were all kinds of instances of lighthouses provided through private contracting. Somewhere claims were once upon a time made
about well, bees buzz around and pollinate crops and you can’t – you won’t get
enough bee pollination. But Steven Cheung wrote a beautiful piece explaining that – exactly
how beekeepers form contracts with both apple growers, clover field owners and so forth
and developed a nice set of contracts that led to honey being produced, apples being
pollinated and human ingenuity is wonderfully creative. But there’s another side to I think human
nature as well, which is the ability to convince one’s self. If someone in the losing end
of the deal can easily convince him or herself that he shouldn’t have lost. So if you have
five people in – undertaking different commercial investments. Two are successful. Three are
not. So those three liquidate. They may – just, OK, well, I’ve liquidated my business. Now
I either go work for someone else or I develop a new business. That’s one strategy. Another kind of strategy is to sign up with
some regulatory agency, some politician, to get a grant program for new enterprises by
people whose previous enterprises went under, or alternatively, as often the case of many
of the actions filed, whether it be for a Federal Trade Commission, a justice department
and so forth, are actions that are filed by people claiming an unfair – they have lost
unfairly by actions of successful competitors. So that is also a natural kind of feature
of human action. Trevor Burrus: So when you think about what
government might be needed for, you should be thinking about that people won’t game
the system like that? Is that – at the very least? Richard Wagner: If you’re going to want
to develop an explanation, to give an explanatory account of what we observe, going on the world
around us, that means we have to read social life not through some kind of rose-colored
glasses about liberalism, private property, and so forth. But try to read them through
what I would call realistic glasses. That – and if so, what are the challenges? I
cite this in the book. That at the time of the American Constitutional Convention, the
story goes that a woman asked Benjamin Franklin on leaving what kind of a government the convention
have established. Franklin was reported to have responded, “A republic, if you can
keep it.” Now that shows a couple of things about Franklin’s
thinking, I believe. One is he thought in evolutionary or developmental terms that says
you have it today. It doesn’t mean you’re going to keep it. That’s to be worked out.
In many respects, we have moved in more – in a futile-like direction compared to what we
had then. It doesn’t mean that futile life is nasty, brutish and short. It can be decently
well. People downstairs in Downtown Abbey all got to sit down and have supper and so
on and so forth. But it’s not a life where you’re free
to aspire to something beyond your status and I think that the ability to aspire to
something, to look forward to something, to live for something, I think is an important
feature that liberal types of orders bring out more fully than other types of orders.
But this still brings you back to the explanatory issue. What are the problems that liberal
kinds of orders then face internally? That might operate to undermine them or at least
to move them in non-liberal directions. Trevor Burrus: Well, if we’re going to get
away from equilibrium, would it be accurate to say you’re against equilibrium? I mean
it’s a weird thing to be against. But you’re against it in misuse of equilibrium. Would
that be a better way of putting it? Richard Wagner: Misuse, not against. Yeah,
I think equilibrium is a perfectly good notion to apply to individual action. It means because
every – one of us in any of our actions, here we are right now. We think of something
we want to do over the coming year. That means that we have some belief or some notion about
how our actions are going to play out and so that you might say is kind of an equilibrium
notion. But what I object to is that equilibrium notion being extended to an entire society
because that gets you from a – moves you away from a pedestrian crowd into a marching
band and I think in the pedestrian crowd, each individual – or groups of individuals
have particular destinations they’re heading to, leaving the stadium. But there is no common destination and the
important thing there is the ability of people to work that all out for themselves. So I
want to – see, I want to have a scheme of thought that allows the generation from inside
a society of new products, new ideas, continual change. So to have that I think means that
one person’s plans two years from now might be challenged because someone else has developed
a new product that’s going to take away business. I think it – that means that the picture
of a free society you’re going to have is going to be one of commotion, of fluidity,
which in turn means that people need to develop various kinds of measures for – on the one
hand, taking advantage of that fluidity, but also to some extent protecting themselves
like insurance. But it doesn’t mean it has to be public-provided social insurance and
so forth. Trevor Burrus: So it seems – in that sense
of equilibrium – I see your book is sort of doing three – like three things. The
steps are take the aggregation element and blow it up. Understand it’s detailed. Let’s
open it up and get inside and understand it’s a bunch of people together for government
and for the market. They’re actually – like CSI. Enhance, enhance, enhance and you figure
out that the equilibrium point is actually – or the interest rate is just a bunch of
individual decisions. But also within government, the government is not a single thing and the
market is not a single thing. Then also to realize that they’re not totally
separate. So there’s a bunch of integrated parts behaving in a creative systems kind
of way, that – in government and in the market and they’re not totally separate.
They’re actually intermixed or they’re tangled. It’s sort of – you’re kind
of pleaded in. Like if you’re going to do honest political economy, you need to realize
these basic points. Would that be an accurate characterization? Richard Wagner: No, it’s certainly a characterization
that I would accept and would embrace. I think it’s – I would also – speaking of these
separate systems or subsystems – I would say there’s one system that’s like society
in which we live and that society if you look at it, then is composed of various kinds of
subsystems, of businesses, governments. There are many points of commonality between political
enterprises and market enterprises. One of the things I wanted to get across in that
book is that so much thinking runs in terms of government construed as a unitary enterprise. Trevor Burrus: The state. Richard Wagner: A state, a single – all
embodied in a head person who makes choices and moves things around. What I had been working
– trying to work out is the idea that – well, government – use the plural. Governments
– we have a system of governments, which are kinds of orders. in fact, Gordon Tullock
in Politics of Bureaucracy once coined the term “bureaucratic free enterprise”. What
he meant by bureaucratic free enterprise is that no one really controlled big, modern
bureaus. There are all kinds of fiefdoms within a bureau, different kinds of agents and sub-agencies
pursuing their desires, their interests. So it was a – Tullock didn’t use the term
but I think Tullock would agree that it was – bureaucracy was a very peculiar set of
firms or enterprises and that’s what I’m trying to get across is that it’s peculiar. But being peculiar I think means that within
some of these ideas about networks says these things can morph you might say. If you have
a relatively small number of these peculiar enterprises within a large sea of private
enterprise, that’s going to be – that kind of a system is going to have different
properties than one, if you have a large number of politically-based enterprises, perhaps
more or less on par with the market-based enterprises. That’s why for instance you
take things like the recession or so-called of 2008. Well, you don’t have any such thing
as privately-ordered credit markets anymore. In a privately-ordered credit market, someone
wants to get a loan. Someone has the capital to make a loan. They can work out a deal.
If the lender doesn’t want to lend, the borrower can come back with a promise of higher
interest, better collateral. But the total credit market is simply the product of the
various efforts of people to make deals. But now, with various kinds of regulations
and so forth, that we have various kinds of rules that lenders have to have, that display
portfolios that show the right kinds of distributions in terms of age, gender, geography, race and
so on and so forth and which I think through that means that there are going to be some
loans made in particular cases that knowingly in – under private ordering wouldn’t have
been made and would have been thought to be bad business and other loans that might have
been thought to be good business under private ordering, won’t be made under public ordering
because they’re squeezed out. So what that suggests to me is you’re going
to end up with a system that’s going to have built in a greater amount of built-in
volatility than it otherwise would have had. But that … Trevor Burrus: And that’s an entangled enterprise. Richard Wagner: That’s an entanglement.
Then the idea of entanglement. I mean I don’t believe in really borrowing directly from
the natural sciences but there is this notion of quantum entanglement that you can’t locate
position on one particle without making reference to some other particle. That’s as close
as I come to an analogy but – what I mean by entanglement is if you look at textbooks
on economics, they’re either a firm that says, well, a firm looks at – it adjusts
its inputs and its prices to a form of production strategy to maximize its profit or its wealth. But if you look at the subject matter that
firms – especially large ones – are going – part of their doing business is going
to involve political grants, political exceptions and so forth and that’s why the big location
for trade associations now has shifted from New York to Washington and why so many chief
executives now travel here on business on a regular basis. It’s not because there’s any – not because
of inputs as we understand them normally or produced here but yet important inputs are.
That’s what I mean by entanglement. At the same time that politicians also crave support
from businesses in various ways that can provide things, and that’s what I mean by – entanglement
has always been with us. I cite a book by – he’s deceased now.
But a wonderful economic historian Jonathan Hughes called the Governmental Habit and Hughes
looked at the economic controls in colonial America and they were still there but just
on a much smaller scale than what they are now. So that’s why I think entanglement
will always be with us. I think it’s part of human nature so to speak. But I think in
– what I want to try to explain here is that entanglement can’t be eliminated. It’s
part of human nature. At the same time, it can become so densely entangled where the
values of the political infuse themselves into the values of the market. The values
of the market infuse themselves into the political. There’s a wonderful book. I’ve been suggesting
too many books I guess in this interview. But that’s what an academic does. It’s
a wonderful book by a woman, Jane Jacobs. She too is deceased now. But she had a book
called Systems of Survival and what she laid out I think is wonderful. It’s that a well-working
society requires an interaction between two types of moral syndromes, which she called
a commercial syndrome and a guardian syndrome. She also coined the term “monstrous moral
hybrids” to refer to what happens when commercial people get involved in politics and guardian
people get involved in markets. I think in a way what this book tries to do is to lay
out in an economic theoretic manner a kind of a – a logic that does two things. It starts with Ben Franklin’s intuition
about a republic if you can keep it, with the observation that well, we haven’t done
all that well in keeping it and Jane Jacobs and the monstrous moral hybrids through the
co-mingling of commercial and guardian syndromes has much value. What I’m trying to do in
this book is to lay out how starting from a basically strongly liberal free market anti-feudal
orientation, you can involve in more of a new kind of feudalism. Aaron Ross Powell: So really curious how – what
you’ve said just now seems like it might be a response to one of the more common criticisms
of markets that we hear from our friends on the political left or a way that they’re
maybe mistaken in how they approach, thinking about government and markets. So going back
to the – when you said that if we had a purely private system providing loans. Like
there are some loans that are being made under the current intermingled system that wouldn’t
have been made if we had purely private actors and there are other loans that would have
been made if we had private actors. A lot of people on the left would say, well,
yeah, that’s the whole point, right? It’s that the interests of the private actors – sometimes
the things that private actors do in a market help people. Sometimes they don’t, but that
their goal is not to help people. Their goal is their bottom line, is to compete better
with other firms and so if it happens that providing the loans – providing good loans
that help people align with that, then that’s what happens. If not – so what we need is
the state to come in and say, look, there are people who are deserving of loans or there
are loans that shouldn’t happen regardless of profit motives. So we’re going to step in and fix things
because we are – the difference between – according to people on the left, the market,
is that the market is – pursuing their private interest and the state is this more unified
thing that’s pursuing the public good. So you need to counterbalance the one with the
other. But as you had mentioned, like that we don’t – we’re not talking about the
government. We’re talking about governments and that – you said bureaucracies are these
peculiar firms. So my question is, does that mean then that this critique of markets, which
is – namely that competition. There’s too much competition and the competition can
be a bad thing. Also can apply to the state in that there’s competition between bureaucracies.
Do they compete in ways similar to or at least analogous to the way that firms compete in
the market? Richard Wagner: There certainly is an analogy
in competition. I think the analogy goes back to individuals. All people form their various
kinds of plans and schemes some on a small scale. Some people just want to be a good
husband, good parent and do their job well through their days. Others have dreams of
big industrial enterprises or political careers. But I would say that there’s a problem that
is deeply woven into our language, that makes an opposition between state and markets. So whether you’re involved in enterprise,
commercial, buying and selling, or you’re involved in political activity and that kind
of dichotomy is a scheme of thought that takes all kinds of normal human sentiments and values
out of commercial activity and sweeps them into the political. Whereas if you ask how
do societies really operate, that yeah, there are profit-seeking enterprises. Also we find – is a whole history of very
successful entrepreneurs and enterprises doing things like endowing foundations, establishing
various kinds of mercenary enterprises and activities that I think in large – to a
large extent represents – I don’t want to give motivational accounts. That’s not
my business but there are many times motives that might lead – someone might want to
just endow monuments to their own perpetuation but I think many of them also feel a – kind
of a gratitude especially perhaps people who came up on their own bootstrap so to speak
who – after they have had some success in business, often like to try to help others.
The state is by no means a place where you find concerns for people who seem to be misfortunate,
unfortunate and so forth, that this is also a quality that you find a lot of people sharing
those beliefs. That historically has been one of the uses
of wealth. It has been – sure, it’s easy enough to find these instances of, I don’t
know, I hate to cast aspersion, but for like the Paris Hiltons of the world who just seem
to just dissipate their wealth. But you also find many others who are involved in trying
to press beliefs, causes, their visions of good societies and so forth. So I think we
underestimated the social value of the creation of wealth and the work that wealthy people
can do and I would also, while I’m on this topic, register the objection. Not to you,
I mean, but the objection out there that says, well, people who want to keep their wealth
for their purposes are somehow – what’s the word? Stingy … Aaron Ross Powell: Selfish. Richard Wagner: Selfish. Yeah. That kind of
thing. But what could be more selfish than a politician – political candidates saying,
“I want your wealth to do with it as I choose, when I haven’t made it.” Trevor Burrus: And to use that to achieve
political power. Like not only have we underestimated the social value and charity and elements
of the market. We seem to have overestimated the people in government, that they’re just
– they’re people who have their competitive advantages speaking to people and promising
to give someone else’s money to someone else and getting power because of that. So
they’re not great people either but this is where they want to be. So we were comparing
the two. We’re just talking about two thought systems that we need to just compare honestly. Richard Wagner: Yeah. We should never forget
that politics is fundamentally about the acquisition of power. Now all politicians say, “I want
power because I want to do good.” But how many politicians have you heard say, “I
want power to do bad.” I mean even Adolf Hitler said he was going to make the world
a better place. Joseph Stalin, Mao Zedong, all these butchers all said they were going
to do good with their power. That’s again what we should expect. But I think our historical
experiences show that sometime – yeah, sometimes power will be used for benefit but mostly
not. I just happen to think that power won’t ever go away. It’s inherent in the human
drama and what we’re – should be engaged in is trying to work out what kinds of arrangements
which power can do less harm than other arrangements. Trevor Burrus: Thank you for listening. If
you enjoy Free Thoughts, please take a moment to rate us on iTunes. Free Thoughts is produced
by Mark McDaniel and Evan Banks. To learn more about libertarianism, visit us on the
web at www.libertarianism.org.

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