01.
Approaches
02.
Methods
03.
Target analysis
04.
Means analysis
05.
Institution analysis
06.
Political economy
07.
Welfare economy
08.
Order analysis
09.
Order conception
10.
Order dynamics
Outline:
1st Introduction
2nd About the history of the political
economics
3rd Essential features of political
economics
4th Micro- versus macro consideration
5th Distinction against scientific
socialism
6th Distinction against a science
imperialism
7th Distinction against the economic
policy teaching
8th Market economy versus democracy
9th Individual goods versus collective
goods
1st Introduction
In this chapter shall be depicted the essential
features of political economy. The so-called political economy is a branch of
economic science that emerged very late, namely at the end of World War II, and
which also differs crucially from the other parts of economic science, namely
in the fact that this part of the economic sciences deals just not with the
events within the economic system.
In this first section we will confine
ourselves to explain wherein then the peculiarities of this discipline are,
what general aims are pursued, but also which intentions this branch of science
does just not have, but which are just in public associated with it frequently.
These misconceptions start already with
the name of this discipline. In general, one refers to economy as the object of
investigation of economic sciences, that is the economic system, the reciprocal
relations between households and enterprises, the interaction between suppliers
and demanders of goods or services at markets.
As we have already indicated, although the
general economic theory (political economy) considers the economic system as a
study object, the 'political economy' does just not do this. Subject of the
investigations of the political economy are all possible societal systems with
the exception of the economic societal system.
Therefore, it is actually wrong to speak
of political economy, here. Rather, it is the way how the traditional economic
theory approaches their problems and analyses what constitutes the essence of a
political 'economy '. It is also almost exclusively the economists who have
developed this branch of science, and now have applied these methods also to
non-economic societal systems.
It would therefore be better, if we would
not speak of 'economy', but of 'economics' and in its German translation of 'Ökonomik'. The term economics or Ökonomik
refers namely just not to the study object, but to the branch of science that
deals with the study object economy. With the term economy or rightly economics
is therefore addressed the subject, the examining scientist and just not the
object of study.
Furthermore, it is also not entirely
correct, when we speak of political economy or economics. Of course, it is
true: the political economics has found its beginning by that Joseph Alois Schumpeter in 1942 made in his work on ‘Kapitalismus, Sozialismus und Demokratie’ the attempt to transfer economic methods on the
political system of a representative democracy. Already long time ago, that
this approach of political economics is confined to the political system. In
the meantime, almost all modern societies have been studied from this
perspective.
2nd About the history of the political economics
Therefore, let us ask ourselves initially
about the history of the origins of political economics and the historical
development of this discipline. As mentioned before, the publication of Joseph
Schumpeter’s ‘Kapitalismus, Sozialismus
und Demokratie’ marked the birth of political
economy.
Schumpeter compared in this study the
behavior of the politicians with that of the entrepreneurs. He emphasized that
economic science has ever found to its current size and importance only, as it
stopped to look at the behavior of the entrepreneurs solely as an action to
promote the general welfare of the population; as it had rather realized that
the entrepreneurs, at their entrepreneurial decisions, have in mind first and
foremost their own well-being: their profits.
Also in the discussion on the behavior of
politicians, it would be important to separate the meaning or aim of a
political order from the motives which move the politicians. Just as modern
economic science insinuates that the entrepreneurs were inspired by a calculus
of profit maximization in all its activities, one has to assume for the policy
decisions that for the politicians it is first and foremost about gaining power
and when they have achieved such, to keep it and to multiply it. In a
representative democracy is this behavior expressed by a vote maximizing
calculus.
However, we must point out that this
knowledge does not mean that the ultimate aim of a representative democracy
perishes, according to which it is about to realize the will of the population
- embodied in the will of the majority of voters. It can be shown, namely, that
it has to be distinguished always between the motives that move the politicians
to their actions and the overall policy aims of a societal system, and that
above all the often expressed opinion that the predominant self-interest
calculus of the entrepreneurs or the politicians would be already evidence
enough that the aims of the common good would be neglected, is incorrect.
The main concern of economic liberalism
was to prove that just a system of order that is based on the own good of
acting individuals, ultimately accommodates the general welfare of the
population much more than an order in which to the executives the requirement
is addressed to think only of the common good and to put last self-interest
with each individual decision.
The trains of thought of Schumpeter were
picked up in the 50s of the last century by Philipp Herder-Dorneich initially
under the pseudonym F. O. Harding, at which mainly the by Pareto and Edgeworth
introduced instrument of collective indifference curves was applied to the
electoral process in a representative democracy, in order to explain this way
the voting behavior. Later, Philipp Herder-Dorneich generally turned to issues
of social cybernetics that is a kind of theory of societal systems.
In the US, it was especially James McGill
Buchanan, who took up and deepened the trains of thought of Schumpeter. His
main works concerning this matter include the in 1954 published work on
'Individual Choice in Voting and the Market', further: the also in 1954 published
work on 'Social Choice in Voting and Free Markets', especially the work
published together with Gordon Tullock 'The calculus of consent' and the work
of 1975 on ‘Die Grenzen der Freiheit
zwischen Anarchie und
Leviathan’. Viktor J. Vanberg then has continued the work of Buchanan and was
concerned among other things in 1983 with the ‘Individualistischen
Ansatz zu einer Theorie der Entstehung und Entwicklung von Institutionen’
and in 1994 with the 'rules & choices in economics' and pointed out the
necessary distinction between the "order of rules" and the
"order of action".
Gordon Tullock has extended his work
furthermore to the area of the state bureaucracy in 1965: 'The Politics of
Bureaucracy'. Tullock became known mainly by demonstrating that the in
democracies widespread majority rule turns out to be fair at best
coincidentally.
Antony Downs counts also to the founders
of the political economics in the USA. His two main works include the 1957
published work: 'An Economic Theory of Democracy' and the in 1967 published
work on: 'Inside Bureaucracy'. Downs dealt among other things with the question
of what can move the voters to participate in the elections, although the
influence of the individual voter on the policy is extremely low due to the large
number of voters.
Although the behavior of the state
bureaucracy has also been investigated by Tullock and Downs, it was primarily
William A. Niskanen who highlighted the relations of the bureaucracy to elected
politicians in the 70s and showed that the bureaucrats succeed to raise the
state budget over the amount corresponding to the desire of the voters.
To the representatives of the political
economy in the United States counts furthermore Dennis C. Mueller. In his
works: 'Voting paradox' (1987), and: 'Constitutional democracy' (1996) he has
pointed out that allocation problems are difficult to solve in the context of
everyday politics, but that these problems are easier approachable in the
framework of the constitution. Namely, if because of the long-term effects the
individual does not know at the pending issue whether the measure benefits
himself at all, he decides to quasi-altruistic.
William D. Nordhaus, who also belongs to
the group of American representatives of political economics, advocated in his
work 'The political business cycle' the view that the behavior of politicians
in a representative democracy contributes to an aggravation of cyclical swings.
Immediately after the election would the politicians namely pursue a
contractionary policy. Despite temporary loss of income this policy was
possible because voters forget quickly. Immediately before the election, the
politicians operate, however, an employment policy. This brings temporary and
relatively fast income gains and guarantees the re-election of politicians.
This policy leads overall to a permanent change of contractionary and
expansionary measures, thus aggravates the economy cycle, in contrast to the
conviction of the Keynesians who emanated from the concept that they could reduce
the economic fluctuations and hence unemployment by means of such a policy.
In the German-speaking area have mainly
Bruno S. Frey and Peter Bernholz spread the ideas of
a political economics. To be mentioned particulary
are the works of Bruno Frey: ‘Theorie demokratischer Wirtschaftspolitik’
(1981) and 'Public choice', results of the last 10 years (1991). Thereafter,
business cycles are influenced by political behavior. Also noteworthy is the
proposal to create in addition to the existing regional division of the public
entities also functionally defined institutions.
Peter Bernholz
published in 1972 together with F. Breyer his basics of Political Economy and
emphasized especially in his work on 'The importance of associations for
economic policy' (1973) the role of interest groups in a representative
democracy. In 1974 he expanded our knowledge about the policy-making process in
his work on: 'Logrolling, Arrow paradox and decision rules - a generalization'.
We mentioned above already, that the
political economics has by no means confined itself to the political system of
democracy, but rather that these viewpoints were transferred to other societal
systems. In this context, especially the work of Richard Posner has to be
pointed out. With him we find the transfer of economic methods to the
dispensation of justice and the legal system. These considerations can be found
mainly in the work published in 1973 on: 'Economic Analysis of Law' and
'Economic Justice and the Economist' and in the fundamental work published in
1981 'The Economics of Justice'.
Even if one cannot count Friedrich August
v. Hayek to the inner circle of political economics, he has, though, developed
especially in his later works a theory about the complexity of the modern
global society systems that can be thoroughly considered as a continuation and
generalization of these viewpoints.
Also with Robert A. Dahl and Ch. E.
Lindbloom, American economists and sociologists, there is found a
generalization of these approaches and an overall view of the global societal
systems, especially in the work jointly published in 1953 on: 'Politics,
Economics and Welfare. Planning and Politico-Economic Systems resolves into
basic social processes'. The democratic system of politics is compared
systematically to the functioning of a market economy. It is shown that in a democratic
election process exists a tie votes, however, in a market economy system exists
a more or less large income differentiation.
If one can also regard Mancur Lloyd Olson
generally as an economic theorist who deals primarily with economic
organizations, he has, though, contributed essentially with his 1965 published
work on 'The logic of collective action' to the comprehension of the role of
interest groups in a representative democracy. The starting point is the
definition of public goods according to the exclusion principle: A good is
considered as public good when the one who is not willing to participate in the
costs of the production of this good cannot be excluded from the acquisition
and consumption of this good.
Related to this is the knowledge that the
political decision-making process is also significantly influenced by the
activities of the interest groups as well as the state bureaucracy. Especially,
the activity of interest groups is pointed out. These would also in a democracy
win influence as on the one hand, they can offer to the politicians information
that they need to assess the undertaken actions; on the other hand, the
interest groups may therefore gain political influence because they can express
recommendations towards their members before elections.
Unclear remains initially the question why
the consumers in turn do not exert political pressure on the politicians, although
they could still pronounce vote recommendations to much more voters because of
their group size. The association theory answers this question therewith that
the various interest groups can be organized differently; the organizational
capability of entrepreneurs associations is high, the one of the consumer
associations, however, is low.
For this thesis are blamed especially the
various transaction costs that must be raised to form interest groups and to
formulate a unified will. These transaction costs increase excessively with the
size of the group, so that the small group of industry associations must exert
much lower transaction costs and can therefore be organised
better than the group of consumers.
This point is even further supported thereby
that income generation interests, that are at in the forefront of the industry
associations, can be organized more easily than the income usage interests that
are in the foreground at the consumer decisions. With regard to the income
generation, each one has the same interests, but not in regard to the income
usage. In addition, citizens are in general more willing to organize themselves
to protect against income losses as to achieve higher incomes.
Here again takes effect that industry
associations mainly pronounce against free trade because they fear loss of
income in case of giving-up of protectionism, while consumer interest in free
trade is based on the fact that free trade can increase income.
Finally, there may also be mentioned at
this point the works of Gary S. Becker. Superficially, differ these works
considerably from the works previously mentioned. While we have previously
pointed mainly to studies that deal with the functioning of global societal
systems, the works of Becker, though, aim on the behavior of individuals and
households. Among his major works count:
1960 'An Economic Analysis of Fertility', 1962 'Investment in Human Capital: A
theoretical analysis', 1964: 'Human Capital', 1973-74: 'A Theory of Marriage'
(2 volumes) and 1988: 'A Reformulation of the Economic Theory of Fertility'
together with R. J. Barro.
Becker brings in these works an
application of economic behavior models on birthrate, marriage and fertility.
The indifference curve system is expanded by the inclusion of economic data
sizes. So it is spoken of the production of usage units, which require the use
of consumer goods and leisure time. Therefore, changes in the indifference
curves result not only from changes in the demand structure, but also from the
technology used in the household. Decisive for these works to be attributed to
the political economics is the fact that Becker transmits perspectives about
the economic behavior of individuals also on non-economic activities of
households like birth, marriage and divorce.
Naturally, a complete picture of all the
important publications of political economics cannot be given at this point. It
represents a selection and is, of course, like any selection - from perhaps a
different perspective - arbitrary.
3rd Essential features of political economics
After this teaching historical
introduction, we now like to explain wherein then the common of all these
contributions consists, what really distinguishes the political economic
theories from other disciplines of knowledge.
We have already pointed out that at the
political economic issues it is always about to apply perspectives, which were
originally developed for the analysis of economic institutions and economic
practices, to areas that commonly are precisely not included with the economic
area; like when, for example, Schumpeter says that the politicians haggle for
votes just like entrepreneurs are eager to increase their income, or like when
Becker analyses a marriage as well as within the framework of the economic
household theory the demand for consumer goods is examined.
The reason why such a transfer of
viewpoints on non-economic problem areas takes place, is not the fact that the
representatives of this discipline emanate from the belief that all human
actions are guided by material interests. Motives and objectives are examined
that are just not regarded as economic interests.
The representatives of the political
economics assume rather that especially since the modern age have arisen
societal systems for all major areas of life, which have common or at least
similar properties and structures and can precisely therefore be studied also
with the same kind of thinking instruments. It is then rather based on a
coincidence that these regularities were analysed
first of all in the field of economy in the course of the history of doctrines.
So what are these - all societal systems
affecting - structures? It was especially Hans Freyer, who differenciated
in his in 1955 published writing ‘Theorie des gegenwärtigen Zeitalters’ between
the medieval primary societies and the modern secondary societies. The primary
companies had grown and existed, mostly as the family, of small, manageable
units, while the secondary companies, for which the industrial society of the
20th century is characteristic, must be considered as a consciously by man
produced secondary system that is marked by large, unmanageable structures, its
own administrative organization and use of technology.
Freyer also determines that state and
society are becoming less separated and that to science an ever increasing
importance is awarded.
In such a society no longer applies the
principle that the person to whom an official position has been awarded, has also
been given the required mind to this from God. Rather, an expertise is needed
to address the modern problems. Just as a pilot, who can fly a small plane (a
single prop aircraft) is therefore not already able to control a jet plane,
also from the application of common sense does not result the ability to take
executive functions at the forefront of modern societies.
For these reasons, have the acting leaders
in the secondary societal systems to be selected according to the expertise. In
the language of Max Weber is ethic of conviction now no longer sufficient,
rather it requires an ethic of responsibility that one is able to perceive only
when one has competence. A top politician may be still so full of good
intentions, if he lacks the expertise; he cannot help to solve the difficult
problems either.
An essential consequence of this
development is, however, that when the executives of modern societal systems
are selected according to expertise, then always a certain percentage of
elected politicians seem morally questionable. There is no reason now to
believe that the percentage of moral failings in the group of executives will
be less than in any other population group.
From the perspective of the welfare of the
population, it is more appropriate that, for example, the problem of mass
unemployment is solved by a professionally competent politician with success,
who though, could perhaps be carried away to some moral failings in private
areas, than that an in every way morally infallible leader controls the fate of
the nation and is also full of good intentions, but who nevertheless succeeds
to get rid of unemployment due to lack of expertise.
Also Friedrich von Hayek has contributed
with his theory of complex phenomena to the understanding of the mode of
operation of modern societies. The modern structures are complex and could just
therefore not be planned completely. But whereas the conclusions of the theory
of Hans Freyer emphasize the opportunities that have arisen in the context of
these secondary societal systems, the considerations of Friedrich August von
Hayek point out rather to the boundaries of the feasible of these societal
systems.
The necessary amount of knowledge for key
decisions is so large that an individual could never have this knowledge. It
would equal an arrogation of knowledge if politicians are striving, perhaps in
meritorious intention, but by far exceeding the limits of the possible, to try
to solve societal problems by planning centrally. The market, which brings the
knowledge of many together, is much more suited to solve the outstanding
societal problems. This aggregation in the market then contributes to the fact
that as by an invisible hand the existing problems are solved, although none of
the persons operating in the market is trying to seek the general welfare in a
direct manner.
4th Micro- versus macro consideration
In the context of the teaching historical
overview we had seen that despite large similarities there are even also
substantial differences in the approach of the political economics. Just as in
economic theory, we can distinguish here between a micro- and a macro analysis.
In economic theory, the micro economic
theory is concerned with the behavior of individual households or the
individual enterprises. Traditionally, the theory of the single market is
attributed to the micro theory, although already here, the single market
examines a large number of individual market participants and, for example, the
demand curve results from the demand behavior of many households, namely in the
way of an aggregation. One speaks of mesotheory in a
narrow sense, but generally attributes this part of the economic theory of
micro economics to the broad sense of the word.
On the other hand, the economic theory of
macro economics analyses the interaction of the individual markets between the
individual goods markets as well as between the markets for production factors
(labor, capital). Here, the cycle interrelationship is at the forefront of the
analysis. So it is, for example, pointed out that the demand for a single good
depends not only on the ratio of the prices of goods, but is also determined by
the level of incomes, which in turn depend on how many goods are demanded
respectively.
The micro perspective within the political
economics gets particularly a chance at the investigations of Gary Becker.
Again, the author confines himself to the analysis of the behavior of
individual households respectively - since the non-economic behavior is in the
focus of the perspective - on the behavior of families respectively spouses.
It is appropriate to class the analysis of
consumer behavior at Gary Becker also to the theory of political economics,
although this is of course a matter of economic behavior in the strict sense.
In the traditional household theory the
demand for goods by households respectively by the consumers is attributed
among others to the demand structure of the individuals, which is a given date
for the household, on the other hand represents a data size for the economic
theory, which - at least in the context of economics - is not necessary to be
examined any further. Gary Becker, however, has set himself the aim to
investigate further also the structure of demand, which is expressed in the system
of indifference curves. In other words, Gary Becker dealt with sizes which have
not been attributed to the economic problem sizes, but were at most object of
study of other social sciences such as psychology. The investigations of Becker
are a prime example of a theory that is indeed attributed to the political
economics, but does not approach a political subject in the strict sense.
However, the majority of the political
economic theories are characterized by a macro consideration. This applies, for
example, to the by Joseph Schumpeter developed theory of a representative
democracy. Of course, also this works build on micro-political behaviors. But
these analyses are only necessary because only with their help the central
question of these theories, namely the question of the functioning of the
overall political system can be answered. What incentives emanate from the
political, thus non-economic system that even if the individual actors mainly
pursue their own interests, yet the end result, the overall policy welfare gets
a chance?
5th Distinction against scientific socialism
After having clarified what then
constitutes the statements of political economics, we want to show the intentions
that this branch of science does just not pursue, even though such aims are
insinuated to the political economics in the general public.
The fact that the representatives of this
knowledge discipline speak of a political economy is often misunderstood to
that effect that at this approach it is alleged that everything that happens
would be understood as materially conditioned, that the root cause of all
action, in other words, lies in the material interest ultimately.
Such an interpretation of history we find
in fact in the scientific socialism of Karl Marx. This was famously a student
of Georg Wilhelm Friedrich Hegel. According to Hegel's philosophy of history,
the history develops in the form of theses which would bring forth an
antithesis, whereat from the conflict between thesis and antithesis finally
results a synthesis which also encompasses both previous theories. So at Hegel
it is the ideas that promote the history.
Karl Marx has indeed adopted this scheme
of thesis, antithesis and synthesis, however, he was of the opinion that
Hegel's teachings virtually stood bottom up and therefore had to be put on the
feet first. It was not the idea, but the material conditions which would
ultimately trigger the historical development. The ideas played in connection
with the historical development only insofar a certain role, as they
constituted the ideological superstructure of each powerful group, which the
rulers would propound to justify their activities.
This conception, that material interests
are the ultimate cause of all action, does just not correspond to the
conception of the representatives of political economics. So within the scope
of this knowledge discipline it is not asserted that people let themselves lead
exclusively of material interests in the non-economic areas such as politics
and culture. Again: It is the approach which is adopted by economic theory and
which is transferable to other sectors of society, and not a specific thesis of
the ultimate motive of all social action.
6th Distinction against science imperialism
Now, we come to another misinterpretation
of political economics. Occasionally is namely the attempt of this direction,
to apply the in economics developed perspectives in other fields of science,
regarded as a kind of claim on imperialism. One had - perhaps successfully -
developed useful methods within the scope of the economics and now wants,
through the acquisition of these approaches on non-economic phenomena, to
displace the hitherto applied methods in these areas.
However, such an interpretation misjudges
the intention of the political economics. It is precisely not about awarding
the supremacy to a single approach. Quite the contrary, the representative of
political economics emanates from the belief that the subject of any science
can never be explored fully and conclusive with a single method.
Instead, one assumes that it always
requires more than one method to obtain a complete picture of reality. Here one
can compare a scientific method with rose-colored glasses. They may be able to
recognize the things that we observe more clearly and precisely. However, they
are certainly not able to discern colors. On the contrary, the pink coloration
of glasses brings along that we recognize everything as inked rose-colored with
regard to the color, no matter what color the object of observation actually
has.
For the observation of the things around
us we dispose of our senses. We see with the eyes, hear with the ears, smell
with the nose, taste with the tongue and touch with our hands. Physiology has
shown us that these senses are imperfect, that we can detect always only a
specific segment of reality and that, for example, animals often see or smell
something completely different and much more than humans.
Based on these limitations of our natural
senses, science has developed a number of instruments which allow us to
perceive much more than with natural senses. So using a microscope, we can see
structures that could never be recognized with our eye alone. But just this
detail view may be responsible in turn that we miss the forest for the trees,
as to say the overall structure of our study object.
We can conclude of these insights that
only at a methodological pluralism we obtain a complete picture of the reality
and not if we confine ourselves to a single method.
This does not mean, however, that all
methods can yield an equally large contribution to the knowledge. Just because
the research aims are quite different, one can, precisely because of applying
specific methods and directing the focus to the features which are considered
essential due to the selected questions, cover more with these specific methods
than with any other perception. Solely remains that no thinking tool can cover
all possible features of a study object.
So we will be able to assume that every
science has developed its own methods, which can recognize the essential
features of a study object better than other methods. In this sense, the non-economic
societal sciences will apply predominantly the methods developed for this
knowledge disciplines. And these methods are then also not displaced when one
is trying to gain some new, hitherto closed insights by means of the specific
economic theory methods.
This limitation of a method is naturally
also true for economic theory. Just as we assume that the methods employed in
economic theory can be applied with success in the other societal sciences, we
also have to acknowledge that the economic theory in turn needs to be
supplemented by other non-economic theoretical methods. So in addition to the
economic theory in the narrower sense, an economic history, an economic
geography, a sociology of economy and an economic psychology have developed.
To be continued!