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The Virginia School of Political Economy and Public Policy Even in Times of Crisis

Summary:
I have been reading closely the new book by David Levy and Sandra Peart, Towards an Economics of Natural Equals: A Documentary History of the Early Virginia School (Cambridge, 2020).  I want to explain briefly what I mean by closely.  The hardback book just arrived at my home on Monday this week.  I have had the Kindle version for over a month, the page proofs over 3 months, and I read each and every chapter and documents as the book was being produced over the past several years.  To put it mildly I am already familiar with this book and have been extremely impressed by it since I read their original paper on the Ford Foundation and the Thomas Jefferson Center for Studies in Political Economy at UVA.  By , I mean every single word, every footnote, every suggested lead.  I am doing

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I have been reading closely the new book by David Levy and Sandra Peart, Towards an Economics of Natural Equals: A Documentary History of the Early Virginia School (Cambridge, 2020).  I want to explain briefly what I mean by closely.  The hardback book just arrived at my home on Monday this week.  I have had the Kindle version for over a month, the page proofs over 3 months, and I read each and every chapter and documents as the book was being produced over the past several years.  To put it mildly I am already familiar with this book and have been extremely impressed by it since I read their original paper on the Ford Foundation and the Thomas Jefferson Center for Studies in Political Economy at UVA.  By , I mean every single word, every footnote, every suggested lead.  I am doing research led by an outstanding study guide written by two mentors.  They see things others don't see until they show them, and they connect dots that simply are missed by others. The subtlety in this work combined with their mastery of the historical context of the exchanges is beyond compare.  I will have more to say in a review essay I am going to write, but today I want to stress two things -- I find some of this material so nuanced that despite my previous familiarity I am learning so much even about positions that I have believed were my own for years, and I want to draw out a critical point about the role of the economists in a free society that is being particularly tested in our current climate.

Here is the first critical take away, what appears to be ideological disagreements between the Virginia School of Political Economy and the orthodox approach of, for lack of a better designation, Samuelsonian economics is really a deep divide.  Until folks understand that point, they end up talking past each other, and confusing the matter rather than clarifying.  My colleague Richard Wagner made this point as well in his James M. Buchanan and Liberal Political Economy (Lexington, 2019), and Rosolino Candela and myself (both jointly and separately) have tried to make this point.  But Levy and Peart stress is over and over again with the direct documentary support from the archives.  Buchanan sums this up in a letter to Kermit Gordon during the discussions with the Ford Foundation, where he states that there are "two essential ways of approaching the study of problems of political, social and economic organization." The first approach Buchanan mentions is the orthodox approach, and can be described as "social welfare function" or "social engineering" approach.  In this approach the economists first establishes a independent criteria or goal for achievement, and then addresses in the policy design space how to identify failure to achieve that goal and design the appropriate response so the goal can be met.  The second approach, and the one Buchanan and his colleagues following Knight wished to pursue in establishing the Virginia School of Political Economy (and I would add one that the Austrian economists as 'students of society' sought to pursue), avoids the establishment of any independent criteria (be that efficiency, growth, etc.) and "instead examines the behavior of private individuals as they engage in the continuing search for institutional arrangements upon which they can reach substantial consensus or agreement."

The implications of this methodological difference are significant as Levy and Peart detail throughout their brilliant work.  "By removing the supposition of fixed goals," they state, "the Virginia School fundamentally altered the role of the economist.  No longer was the economist to offer policy advice to attain the known goals of society.  Instead, the role of the economist was a more modest one of offering suggestions for public consideration."  In a letter to Mancur Olson in 1971, Buchanan writes: "Mainstream economists conceive of themselves to be members of an 'establishment elite' who somehow have a divine right to advise whatever governments may exist toward doing things that this elite knows is really 'good' for society at large. The difference between this and the radical way of putting this is to say that the mainstream economists are hardly 'democrats' at all, whereas maybe, at base, both my position and the radical position could be treated as this."  It is this Knightian thrust of democracy by discussion that underlies the discussion of the role of the economist in a free society. And, by a free society, the Virginia School political economists (Vinning, Buchanan, Nutter, Coase, Tullock, etc.) meant not a cartoon caricature of laissez faire, but a republican notion of a society of the citizens own choosing.

As Levy and Peart conclude their book, "If we suppose that the difference between real harms and negligible harms is a matter for experts -- and perhaps only for experts -- then the door is open for the economist as physician to enter with a policy prescription: 'This is good for you; it will do no real harm.'  A great service, we believe, of the Virginia School has been to oppose this view of the economist from inside the community of economists."

Now consider the world we are current ensnared within -- a global public health crisis combined with extreme uncertainty -- what is the right response by economists.  Consider three different proposals.

First, my colleague Tyler Cowen's proposal. This proposal seems to want to build a consensus, offers the policies as a suggestion, and admits the trade-offs and in doing so submits the suggestions as potentially falsifiable.

Second, my colleague Garrett Jones's defense of expert guided policy.  Garret is concerned with democratic dysfunction is a time of crisis, Aristotle's polity would be better served by rule by elite in this instance. And, to be honest, hearing the various proposals from Senator Warren, or Congresswoman Alexandria Ocasio-Cortez as deliberations over the policy choices to combat the crisis certainly should give one great pause.  (Go back up to Cowen in contrast)

Third, consider the proposal from Gabriel Zucman and Emmanuel Saez for government as a buyer of last resorts.

There are many more I could list ... see the different briefs at Economics for Inclusive Prosperity.

Now, not ideologically, but instead methodologically ask yourself which of these proposals align with the orthodox approach of social engineering, and which ones align with students of society, and furthermore which one fits easier with the idea of economists as enlightened elite who advises government to rule over, or the economists as possessing of no special privilege in a free society which strives for democratic self-governance.

All those knowledge problem arguments that Hayek developed, and those incentive alignment problems that Buchanan developed, where not window dressing on a pre-programmed ideological agenda, they follow from a methodological perspective that follows from not only epistemological positions but ontological positions concerning political, social and economic life and the role of the economist in a free society.

I hope we can have this conversation -- if not today, then perhaps in the future.  It matters.  In the meantime, read Levy and Peart while you practicing social distancing.

Be safe, be smart, stay sane.

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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