Economists and the State

Economists and the State

What Went Wrong

Timothy P. Roth

Adam Smith is widely regarded as the ‘founder of modern economics’. The author shows, however, that Smith’s procedurally based, consequence-detached political economy, an approach shared by America’s Founders, finds no expression in the economist’s utilitarian, procedurally-detached theory of the state. This ‘wrong turn’ has meant that, if economists are ill-equipped to address an expanding federal enterprise in which utilitarian considerations trump the Smithian/Madisonian idea that means and ends must be morally and constitutionally constrained, they are also ineffectual bystanders as growing institutional skepticism, demands for ‘social justice’ and metastasizing rights claims threaten our self-governing republic.

Chapter 3: What economists do

Timothy P. Roth

Subjects: economics and finance, political economy, public choice theory, politics and public policy, political economy, public choice

Extract

3.1 THE ECONOMIST’S CONSEQUENTIALIST THEORY OF THE STATE The ‘economic’ approach to government finds expression in the normative application of the economist’s utilitarian theory of the state, social welfare theory. This, in turn, is a reflection of what has been called the ‘relentlessly utilitarian nature of economic theory’s core ontology’ (Hahn 1982, p. 187). I emphasize, first, that utilitarianism in the hands of economists differs from the philosophical tradition. Whereas ‘ideal’ utilitarians generally seek the ‘good’, which ought to be promoted, economists identify welfare or the ‘public good’ with utility (Warke 2000, p. 374). Moreover, whereas Bentham’s hedonic utilitarianism contemplated constitutional reforms intended to ensure that ‘utilitarian processes would prevail in the public arena’ (Warke 2000, p. 379), social welfare theory is institutionless and procedurally-detached. Finally, whereas utilitarianism is a part of the corpus of moral and political philosophy, social welfare theory is intendedly value-free. It remains true, however, that utilitarianism as contemplated by most philosophers, and social welfare theory as deployed by economists are, first and foremost, theories of public action. It should be clear that consequence based, procedurally-detached social welfare theory is, both in conception and application, the polar opposite of the Founders’ procedurally based, consequencedetached republican self-government project. Consider, first, the distinction between economic and political efficiency, and between distributional ‘equity’ and justice as impartiality. Whereas the Founders sought to promote political efficiency, the minimization, through formal and informal institutional restraints, of narrowly self-interested ‘factious’ behavior, social welfare theory’s practitioners, both economists and politicians, understand economic 48...

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