28. Hoppean Political Economy versus Public Choice

Thomas J. DiLorenzo

James M. Buchanan’s 1986 Nobel prize in economics signified recognition of the fact that Buchanan and his colleagues in the sub-discipline of “public choice” had resurrected the study of political economy in the profession. From at least the time of Adam Smith until the early twentieth century, it was generally understood that one could not fully understand the economic world unless one included study of the impact of the state on the economy. In its zeal to mimic the physical sciences, the economics profession had abandoned the study of political economy, for the most part (with the exception of the Austrians), and embraced mathematical model building—usually of “models” that explained why markets always “failed.”

Buchanan’s pioneering work in public choice did not directly challenge the voluminous “market failure” literature; instead, he and others developed theories of the political process under democracy, based on economic theory and methodology, that helped to explain why government failure is likely to be far worse than any shortcomings of the free market, by any standard (certainly by the standard of Pareto optimality).¹ Thus, public choice is said to be a study of “comparative failures,” of markets and governments.

Hans Hoppe’s seminal work, Democracy—The God that Failed,² is in many ways far superior to the analysis of democracy that is provided by public choice analysis because it is grounded, not in neoclassical economic theory, but in “Austrian social theory” and is especially influenced by the work of Ludwig von Mises and Murray Rothbard. The combination of Austrian economics and the historical and philosophical insights of Mises and Rothbard enabled Hoppe to develop insights that are at times devastatingly critical of the much-acclaimed public choice theory while providing far superior explanations of the workings of democracy. The purpose of this paper is to point out or highlight some of these major insights and to explain how they are different from, and superior to, public choice insights.

DEMOCRACY AND THE PROCESS OF DECIVILIZATION

One of the first differences between Hoppean political economy and public choice has to do with Buchanan’s standard explanation for why government is supposedly needed in the first place. In short, Buchanan has endlessly repeated the slogan attributed to the philosopher Thomas Hobbes that in a voluntary society without government, life would be “nasty, brutish and short.” The implication is that without government, theft and violence would run rampant, creating a chaotic, unpleasant, and dangerous society.

But Buchanan has never offered much more than a repetition of this catchy slogan to make this argument. Hoppe, on the other hand, thinks the issue through very systematically. Yes, criminal activity can be destructive of civilization, but so can government itself, and much more than mere criminal activity. That is, “democracy” may not only fail to be “perfect” and in need of reform; it can be the cause of that “nasty” and “brutish” life that Hobbes and Buchanan so feared.

For one thing, victims (or potential victims) of crime can always legitimately defend themselves. This is not true whenever governments seek to confiscate one’s property through taxation, “takings,” or regulation. “In these cases a victim may not legitimately defend himself,” writes Hoppe.³ And “[t]he imposition of a government tax on property or income violates a property or income producer’s rights as much as theft does.”⁴ Governmental money creation is also an act of theft, since it reduces the value of privately-held wealth. Regulation also constitutes theft, since ordering someone as to how he may use his property (beyond prohibiting him from harming someone else with it) amounts to “extortion, robbery, or destruction.” And since property rights destruction by government becomes institutionalized (since citizens cannot legitimately defend against it), the entire society becomes more present-oriented and develops a higher rate of time preference due to the fact that people’s expected rate of return on productive, future-oriented activity is reduced.

In a worst-case scenario many “formerly provident providers will be turned into drunks or daydreamers, adults into children, civilized men into barbarians, and producers into criminals.”⁵ Who could deny that this is a characteristic of modern democracies like the U.S.? As such, democratic government “presents a constant threat to the process of civilization,” precisely the opposite of Buchanan’s view of the “necessity” of government in defense of civilization.⁶

In the first chapter of Democracy—The God that Failed Hoppe clearly states that he is not a monarchist and does not support monarchy. He merely applies logic and economic reasoning to a comparison of monarchy in order to highlight features of democracy that are typically ignored by public choice scholars (and most everyone else). Basing his analysis on a property rights perspective, something that public choice scholars rarely do, Hoppe makes the point that, since they own the entire country, monarchs will have incentives to minimize the destructiveness of crime, and will also moderate the extent to which they expropriate the wealth of their citizens lest they destroy their incentives to be productive.

Democratic politicians, by contrast, behave in exactly the opposite way: they will seek to maximize current income in a process of “continual capital consumption.”⁷ For what is not used up now by current officeholders will be gone forever (for their taking) in a few years.

Hoppe’s analysis of government debt also differs from the standard public choice analysis. The latter contends that all politicians, regardless of party affiliation, have an inclination to vote to spend now and pay later—to engage in deficit spending as a means of creating a “fiscal illusion,” i.e., making government seem less expensive than it actually is to current voters.

Hoppe focuses on the effects of property rights instead. Since politicians in a democracy are not held personally responsible for the debts that they incur while in office, the public debt will naturally increase. Taxes will have to be raised to service the increasing debt, which in turn will cause even higher rates of time preference as taxpayers anticipate higher future tax burdens. Society becomes progressively “infantilized.”

As democracy grows, writes Hoppe, it tends to wage a constant war against individual responsibility by “increasingly relieving individuals of the responsibility of having to provide for their own health, safety, and old age.”⁸ The combination of high time preference, coupled with the lack of irresponsibility inevitably leads to more crime in society, not less, as society sinks into moral relativism. Thus, democracy is not necessary to deter crime and maintain civilization; it causes crime.

FAILURES OF PUBLIC CHOICE

Although most members of the Public Choice Society, the professional academic organization of public choice scholars, would consider themselves to be political conservatives or libertarians, their research agenda has been tainted to some degree by fear of political incorrectness, a fear that no one would ever accusing Hoppe of having. Perhaps the most glaring example of this is the almost complete absence of any discussion of the topic of secession in a field that is supposed to be devoted to research of political institutions. Failure to consider the implications of political secession (unlike Mises, Rothbard, and Hoppe) has led public choice scholars to essentially waste thousands of pages of print, and years of research effort, in their writings on the topic of federalism and the political economy of state and local government.

What I am referring to is a large literature in public choice that models “competition” between local governments in a metropolitan area as being similar to competition in an industry. Voters are said to be able to “vote with their feet” if a particular governmental jurisdiction has say, excessively high taxes and/or low-quality “public services.” Such mobility is said to “discipline” state and local politicians in the same way that marketplace competition disciplines corporate managers and gives them incentives to cut costs and prices and improve the quality of the goods and services they are selling.

But this entire literature, most of which is based on research on the U.S. political system, completely ignores the historical reality and effects of the U.S. government’s violent destruction of the right of secession. After the U.S. government proved to the world that participation in its union was in no way voluntary, all of the states (not just Southern states) soon became mere appendages or franchisees of the central government. Government at all levels became more and more centralized and, as a result, there was very little difference in terms of tax burden between jurisdictions. Decades of research in public finance bears this out by showing that differences in interstate tax burdens do not provide much of an incentive at all for the migration of population or businesses. This is all simply ignored by public choice scholars who proceed with their analyses as though the American War Between the States never happened. Not Hoppe, though. He cites Ludwig von Mises who “had a soft spot for democracy,” but believed that an essential feature of any democracy must be the right of secession.⁹ He quotes Mises from his book Liberalism as saying that classical liberalism

forces no one against his will into the structure of the state. . . . When a part of a people of a state wants to drop out of the union, liberalism does not hinder it from doing so. . . . [W]henever the inhabitants of a particular territory . . . make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, their wishes are to be respected and complied with.¹⁰

This is how Mises believed a democratic government could be induced to respect property rights.

The right of secession was eliminated, of course, in 1865. As Hoppe writes:

Mises’s definition of democratic government was applicable to the U.S. until 1861. . . . However, after the crushing defeat and devastation of the secessionist Confederacy by Lincoln and the Union, it was clear that the right to secede no longer existed and that democracy meant absolute and unlimited majority rule.¹¹

Hoppe does not make the mistake that public choice scholars make in assuming that state and local politicians are analogous to business managers who compete for “customers” by offering better services or lower (tax) prices. They do compete, says Hoppe, but they are competing for the “right” to plunder the taxpaying population. After all, Americans have a wide choice of post offices to do business with, but they are all a part of the same centralized U.S. Postal Service monopoly. Their choice among local governments is no more of a genuine choice than the “choice” among monopoly post offices is.

Many of the more prominent public choice scholars ignore the role of ideas in shaping public policy, most likely because of their positivist method. The influence of ideas on society is not something that can be easily “measured” and subjected to econometric testing, so it is simply ignored.

In contrast, following Mises and Rothbard, Hoppe shows how “the power of every government rests only on opinion and consensual cooperation,” ultimately.¹² Moreover, “if the power of government rests on the widespread acceptance of false and indeed absurd and foolish ideas, then the only genuine protection is the systematic attack of these ideas and the propagation and proliferation of true ones.”¹³ Furthermore, if government becomes tyrannical and therefore illegitimate, then it is one’s duty to consider “all federal law, legislation and regulation null and void and ignore it whenever possible.”¹⁴ Peaceful secession and non-cooperation with the illegitimate state is the only way to avoid being a slave to the state, says Hoppe.

This is dramatically different from the life work of James M. Buchanan, whose “constitutional economics,” a branch of public choice, was established to pursue the project of constructing “a voluntary theory of the state,” in the words of onetime Buchanan protégé, Viktor Vanberg.¹⁵ Buchanan and others have spun many tales of a theoretically voluntary state, but of course there is nothing voluntary about the real-world state. Thinking of the American state in the post-1861 era as somehow voluntary is simply ludicrous.

Another major difference between Hoppean political economy and public choice is in the area of “class analysis.” In their seminal work, The Calculus of Consent, Buchanan and Gordon Tullock adamantly denied that their analysis of political decision making and interest-group politics had anything to do with any kind of class analysis, especially Marxian class struggle analysis. This was a serious departure from classical liberalism, for there is a very long history of “libertarian class analysis” that is not based on any conflict between workers and capitalists, but on governmental exploiters versus the exploited taxpayers.

By definition, writes Hoppe, democracy means that everyone’s income and property is immediately “up for grabs” by any political coalition that is powerful enough to grab it. “Majorities of ‘have-nots’ will relentlessly try to enrich themselves at the expense of ‘haves’.”¹⁶ Following Rothbard, Hoppe is not fearful of quoting the great John C. Calhoun’s Disquisition on Government that makes this point very eloquently.¹⁷ (But because Calhoun is considered by some to have been the philosopher of Southern secession in the nineteenth century, political correctness in today’s academe (including public choice scholars) demands that he be ignored.)

Hoppean political economy is nowhere more diametrically opposed to public choice theory than in Hoppe’s statements on the subject of what to do about all of the decivilizing effects of democracy. The standard public choice approach is to try to recommend small changes at the margins of political decision making that will supposedly “improve” democracy, e.g., balanced-budget amendments to the Constitution, qualified majority-rule voting, term limits, etc. And of course thousands of pages of books and journal articles have been devoted to bolstering this approach by arguing, essentially, that democratic government really is voluntary, despite all outward appearances. Just read any issue of Buchanan’s Journal of Constitutional Economics for a look at this viewpoint. All of the attempts by such scholars to redesign modern constitutions, says Hoppe, are “hopelessly naïve.”¹⁸

In sharp contrast, Hoppe writes that “The central task of those wanting to turn the tide and prevent an outright breakdown [of civilization] is the ‘delegitimation’ of the idea of democracy as the root cause of the present state of progressive decivilization.”¹⁹ Even the founding fathers, Hoppe points out, were “strictly opposed to” democracy and considered it to be “nothing but mobrule.”²⁰ The idea of democracy, in Hoppe’s opinion, is immoral as well as uneconomical.²¹ Practitioners of “constitutional economics” will be offended by such language, but in the tradition of Mises and Rothbard, Hoppe’s first and foremost objective is the pursuit of truth, even if it comes at the expense of having a less-than-cozy relationship with other segments of the economics profession.

Hoppe attacks the hopelessly naïve views of “constitutional economics” head on, by recognizing that the long history of theorizing about “tacit” (but not actual) consent for government is patently absurd. In The Calculus of Consent, for example, Buchanan and Tullock argue that political decision making is in theory similar to marketplace decision making, especially if one can theorize about unanimous political consent. They recognize that there is never unanimous consent in politics, and that if there was, there would of course be no need for government. Truly voluntary behavior would emerge.

So they first make the case for “qualified” majority voting, still recognizing that 60 percent or 70 percent is not the same as 100 percent agreement. They then resort to the notion of “tacit” or “conceptual” consent. If one can conceive of unanimous consent, then one can declare government to be voluntary after all, say Buchanan and Tullock. This is pure nonsense, says Hoppe, and he is certainly correct. How this apology for statism ever became considered to be a part of classical liberalism is a mystery. (But perhaps this explains why the Swedish socialists who sit on the Nobel prize committee gave Buchanan the award in 1986.)

One further thing that characterizes the work of many public choice scholars, especially Buchanan and his followers, is an overblown degree of importance that is given to the “free-rider problem” in economics. Your author has personally heard Buchanan invoke the free-rider problem, the prisoner’s dilemma, and Thomas Hobbes on dozens of occasions to justify the existence of the state, i.e., democracy. Having established the point that the “minimal state” is absolutely necessary, public choice scholars then go about their business of proposing minor tinkering at the margins with regard to the “rules of the game” of political decision making under the wishful belief that democracy can somehow be tamed.

Hoppe addresses this point head on as well by pointing out how one man’s free-rider problem is often another man’s profit opportunity (for solving the “problem”). Perhaps the most famous example of the alleged need for government to “solve” free-rider problems is national defense, which is always defined as a prototypical public good. As such, we are told that government must tax us to provide it and, furthermore, defense must be supplied by a government-run monopoly.

But isn’t monopoly another form of “market failure?”, Hoppe asks. Exactly how does one make the case for allocative efficiency by “solving” one “market failure” problem and replacing it with another one?

Austrian social theory, unlike all branches of “mainstream economics,” including public choice theory, does not make the mistake of placing too much credence in the notion that truth about a subject as complicated as democracy can be arrived at in a theoretical vacuum that ignores history and philosophy. By largely ignoring history, or selectively using only the parts of it that support their research paradigm, public choice theorists have constructed a naïve and misleading view of constitutions and constitutionalism.

From the beginning of the American republic there were two distinct views of constitutional interpretation: the Jeffersonian view and the Hamiltonian view. Jefferson and his followers believed that the U.S Constitution could and should be seen as a set of limitations on the powers of the central government. Hamilton and his followers saw it exactly the opposite way: as a potential rubber stamp of approval (if “properly interpreted” by clever lawyers like Alexander Hamilton) for anything the central state ever wanted to do. It took several generations, but by the twentieth century the Hamiltonian view prevailed. Not a single federal law was ruled unconstitutional by the rubber stamp U.S. Supreme Court between 1937 and 1995.²²

This did not happen overnight. It was the result of a long struggle in the war of ideas, combined with the brutal mass killing of the only group in American society to ever challenge the notion of unlimited powers wielded by the central government—the Southern secessionists. By 1865 the principle had been established that the federal government would be the sole authority with regard to issues of constitutionality. As the Jeffersonians had long warned, when the day ever came that the federal government assumed such authority, it would inevitably assert that there are, in fact, no limits at all to its powers. This is where America stands today, and has been standing for several generations.

Hoppe was never deluded by all the happy talk about constitutionalism. What can be done about the current state of affairs? “First,” he writes,

the American Constitution must be recognized for what it is—an error. . . . [G]overnment is supposed to protect life, property, and the pursuit of happiness. Yet in granting government the power to tax and legislate without consent, the Constitution cannot possibly assure this goal but is instead the very instrument for invading and destroying the rights to life, liberty, and the pursuit of happiness.²³

Austrian social theory is a far superior tool for understanding economic and political reality than is public choice theory. Democracy—The God that Failed is a true classic in the literature of liberalism, whereas it is a mystery as to why anyone would consider The Calculus of Consent, which is basically a social contract theory/apology for statism, to even be included in that literature.

Thomas J. DiLorenzo (tdilo@aol.com) is professor of economics at Loyola University-Maryland, and a senior fellow at the Ludwig von Mises Institute.

¹See, e.g., James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan, 1962); James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory (Chicago: Markham, 1969).

²Hans-Hermann Hoppe, Democracy—The God that Failed: The Economics and Politics of Monarchy, Democracy, and Natural Order (New Brunswick, N.J.: Transaction Publishers, 2001).

³Hoppe, Democracy, p. 12.

⁴Ibid., p. 13.

⁵Ibid., p. 15.

⁶Ibid.

⁷Ibid., p. 24.

⁸Ibid., p. 66.

⁹Ibid., p. xxiii.

¹⁰Hoppe, Democracy, p. 79, quoting Ludwig von Mises, Liberalism: In the Classical Tradition, Ralph Raico, trans. (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, [1927] 1985), p. 109.

¹¹Ibid., p. 80.

¹²Ibid., p. 90.

¹³Ibid., p. 93.

¹⁴Ibid., p. 91.

¹⁵Viktor Vanberg, “The Impossibility of Rational Regulation? Regulation, Free-Market Liberalism, and Constitutional Liberalism,” paper presented at the Annual Meeting of the Mont Pèlerin Society, Washington, D.C. (August 31, 1988).

¹⁶Hoppe, Democracy, p. 96.

¹⁷John C. Calhoun, A Disquisition on Government (New York: Liberal Arts Press, 1953).

¹⁸Hoppe, Democracy, p. 110.

¹⁹Ibid., p. 103.

²⁰Ibid.

²¹Ibid., p. 104.

²²For further discussion of these issues, see Thomas J. DiLorenzo, Hamilton’s Curse: How Jefferson’s Arch Enemy Betrayed the American Revolution—and What It Means for Americans Today (New York: Crown Forum, 2008).

²³Hoppe, Democracy, p. 279.