Liberalism has two mutually reinforcing aspects. The first is humility: I can’t assume I’m right. The second is toleration: I can’t assume you’re wrong.
The practice of liberalism therefore rests on a strong, but rebuttable, deference to individual agency. That practice requires a deep skepticism of concentrations of power. Historically, the different flavors of liberalism have privileged some kinds of power and handicapped others. Left liberals have been concerned about corporate power, but optimistic about the state; classical or right liberals downplay concentrations of market power but want sharply to limit the state.
I work and write in the field known as public choice. Public choice began as an antidote to the naïve application of the “market failure” paradigm, in which deviations from perfectly competitive markets always led directly to inefficiencies that markets themselves could never solve. This view was unchallenged in the 1950s and 1960s, and it worked to identify (mostly legitimate) problems with private, decentralized commercial processes. Markets are not perfect, so state action is required.
What was missing was any theory of government failure. Under what circumstances—if ever—would state action likely be counterproductive? Government policy results from the digestion of imperfect inputs: the rational ignorance of voters, the concentrated interests of organized groups, and the principal-agent failures of unaccountable bureaucracies. Why would we expect imperfect government control and direction to be better than imperfect markets? This concern extended worries about market power to concentrations of power more generally.
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That critique also extended earlier Austrian economics critiques of socialism. But there were differences. Any system of social coordination must “see with two I’s”: information and incentives. The Austrian response to socialism had focused on the “knowledge problem,” or the difficulty of knowing the best opportunity use of resources in a setting where prices are not available. Public choice accepted this argument, but it focused more on incentive problems. In the right circumstances, commerce can reconcile self-interest and group success, but political processes often pit groups against each other in a zero-sum contest for power. In politics, if one side wins, the other often loses. Public choice raised strong objections to the “markets fail, therefore state action” view of public policy, especially when combined with the powerful gravitational forces of corruption and bureaucratic empire-building.
But “government failure,” alone, is likewise problematic. True, public choice has been a valuable counterweight to a naïve optimism about the state. But it is tempting to go too far in the other direction, inverting the earlier error: the state fails, and therefore everything should be done by markets. As I have argued elsewhere, this “competing unicorns” view of society is misleading, and ultimately destructive. “Markets” are not the same as “business.” In fact, scholars going back at least to Adam Smith have lamented this tension. Markets require competition; business hates it. Organized business interests will use any means at their disposal to suppress competition, either domestically or from abroad. Public choice scholars need to be humble and tolerant, just like everybody else.
I will be posting essays that take a public choice perspective, or rather what I take to be the public choice perspective, in future months. For this introductory effort, I will lay out the foundation of public choice in liberalism, and show how liberalism needs public choice. The tl;dr version of my position is this: To survive, liberalism must accept a new, syncretic formulation. The avatars of that synthesis are Adam Smith and Michel Foucault. Seriously.
Smith and Foucault: A New Liberalism
In the The Theory of Moral Sentiments, Adam Smith famously described the “man of system,” a powerful person “apt to be very wise in his own conceit.” But such persons are neither humble nor tolerant, actively stretching their efforts at control of others beyond their expertise, arranging groups in society like players arrange the pieces on a chess board.
The problem is that “every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it,” as Smith puts it. This is why pure systems fail; the insistence that the system must be established “completely and in all its parts” requires us to suspend humility and toleration, and often simply to abandon them. In opposition to the aspiration to “system,” Smith urged the minimalist approach of “natural liberty.”
This idea of system, though at an even more encompassing level, came to concern Michel Foucault also. Foucault never met Smith, of course; they lived most of two centuries apart. But towards the end of his life Foucault increasingly focused on the problem of power, cutting across the traditional state vs. private dichotomy and considering systems that he called “dispositifs.” These deployments of practices, rules, norms, and accepted techniques shape and circumscribe what can be done, and delimit how problems and actions can be conceived and represented, across both state and private actors. A school’s dean of discipline may be a private actor in a private institution, but they also have the ear of the police, and with good reason; the same may be said of a clinical psychiatrist, or even a prominent member of the clergy.
Political philosopher Eugene Heath explicitly frames the sovereign tempted to pursue a totality of outcome as exemplifying Smith’s “man of system.” The man of system, though, is not personally a party to, or even knowledgeable about, all of the myriad dispositifs of his own society. Heath then uses that notion to sharpen what’s at stake in Foucault’s reading of Smith (especially the “invisible hand” and the limits of sovereign knowledge). As Foucault wrote,
Invisibility is not just a fact arising from the imperfect nature of human intelligence which prevents people from realizing that there is a hand behind them which arranges or connects everything that each individual does on their own account. Invisibility is absolutely indispensable. It is an invisibility which means that no economic agent should or can pursue the collective good. But we must no doubt go further than economic agents; not only no economic agent, but also no political agent. In other words, the world of the economy must be and can only be obscure to the sovereign…[S]ince the economic mechanism involves each [private citizen] pursuing his own interest…each must be left alone to do so. Political power is not to interfere with this dynamic naturally inscribed in the heart of men. The government is thus prohibited from obstructing individual interests.
This is what Adam Smith says when he writes: the common interest requires that each knows how to interpret his own interest and is able to pursue it without obstruction. In other words, power, government, must not obstruct the interplay of individual interests. But it is necessary to go further. Not only must government not obstruct the interests of each, but it is impossible for the sovereign to have a point of view on the economic mechanism which totalizes every element and enables them to be combined artificially or voluntarily. The invisible hand which spontaneously combines interests also prohibits any form of intervention and, even better, any form of overarching gaze which would enable the economic process to be totalized. (Foucault, p. 280, Birth of Biopolitics, emphasis added.)
Mark Pennington has rightly connected Foucault’s “invisibility” leitmotif to F.A. Hayek’s knowledge problem. Pennington points out that the notion of dispositifs is likely a more representative, and more general, instance of Smith’s idea of “system,” since it is rare that any single planner or even an organized group of planners is consciously in charge of the economy.
I want to extend Pennington’s useful connection to Austrian economics, so that it connects with public choice also. Foucault had a perspective on the state that is quite close to the core assumptions of public choice:
This [claim that the state should be self-interested] is in fact one of the fundamental features of mercantilist politics… The problem is the wealth of the state and not that of the population. Raison d’Etat is a relationship of the state to itself, a self-manifestation in which the element of population is hinted at but not present, sketched out but not reflected. (“Security, Territory, Population,” lectures at the Collège de France, 1977-78).
That’s radical, for someone mostly of the political left. The left usually calls markets and commerce “greed” and politics and the state “altruism.” Foucault made the argument, buttressed by empirical evidence, that this was just not true, and moreover could not be true, because the interests of other individuals could not be perceived, much less acted on, by those in centralized authority. The state cannot (because of incentives) and should not (because of information limitations) direct private action and individual choices.
I find it interesting that Smith and Foucault connected in this regard; still, their approaches and understandings of the problem were different. Smith criticizes the hubris of intentional system design; Foucault anatomizes the unintended (and semi-intended) systematic effects of power/knowledge apparatuses. They converge on the danger of “totalizing” reason, but they diagnose it at different levels; Smith criticizes the hubris of individual architects; Foucault looks to agents who act within a given apparatus. What Foucault does, especially in the Birth of Biopolitics lectures, is to treat classical political economy (including Smith) as a key moment in liberal “governmentality,” where the state is told it cannot (and should not pretend to) “see” or totalize the economic order.
My Starting Point: The “Pretty Pig” Problem
Pennington (and Foucault!) suggest that the tools of public choice have a big role to play in a well-functioning liberal political economy. Their work points us to an inherent difficulty of policymaking, namely that decisionmaking takes place in a peculiar information environment, one that always leaves much of the social world invisible. Studying the information environment where public policy gets made is an important aspect of public choice, and it’ll be a theme of my columns here.
Public choice relentlessly calls our attention back to imperfect information in policymaking. That’s useful because it helps us think about a dilemma that’s sometimes been called “the Pretty Pig problem,” a homely restatement of Buchanan and Tullock’s “Emperor’s Dilemma.” My “Pretty Pig” contest has only two entrants, because (let’s be honest) adult pigs just aren’t pretty. The first pig is led out, and the judges grimace at the sight of the ill-favored beast. Quickly, they call off the pageant and give the award to the second pig, sight unseen.
Many arguments for replacing decentralized commercial action with regulation, planning, or public production are like that. They begin sensibly, but then go full “Pretty Pig.” Analysts carefully document genuine flaws in market processes—externalities, imperfect information, monopoly power, inequality, corruption—and then, having established that markets are ugly, they simply give the prize to the state, sight unseen. A genuine real-world situation differs from an ideal they can imagine, and the winner is always the unseen ideal.
If that were the whole story, all that would be necessary would be to spread the public choice model of “government failure” as a corrective. But it’s not that easy, because many people on the libertarian side suffer from the “Pretty Pig” fallacy in the other direction. Focusing on the (many, and real) flaws of state action, they give the prize, sight unseen, to private action. Unfortunately, free and competitive markets are not what happens when there is no state, or when the state that does exist does nothing. Concerns about concentrations of power are legitimately used to argue for limiting the state, but private enterprise is also capable of concentrating power. As Foucault put it, “My point is not that everything is bad, but that everything is dangerous.” That is the public choice view, also.
Adam Smith was militant in arguing for a presumption in favor of liberty, and private action, but he was very aware of the willingness of private actors to try to insulate themselves from competition. It is fair to say that these efforts will be most effective when private actors can commandeer the coercive powers of the state, but even without the aid of the state, concentrated power centers can be created and exploited.
The parts of this argument will be fleshed out in my future posts. It is useful for now to offer a brief rehearsal of the claims made here. First, liberalism—if it is to be sustainable—is best understood as a discipline of restraint grounded in humility and toleration. Accepting that claim entails a rebuttable presumption in favor of individual agency and a deep skepticism toward concentrated power—whether state or corporate.
Public choice, my particular branch of academic work, is liberalism’s necessary corrective to the market failure paradigm’s habit of contrasting real markets with ideal governments. Recall that any legitimate analysis of institutions in a liberal society must insist on a comparative approach, seeing “with two I’s”: information and incentives. This allows us to recognize and address government failure without falling into the mirror-image error of treating markets as the idealized alternative.
Finally, I have proposed, and in future essays will expand, the strong claim that liberalism’s survival requires a syncretic reformulation—linking Smith’s critique of the “man of system” with Foucault’s analysis of “invisibility” and dispositifs—to warn against “totalizing” claims of governance. Evaluating the two major forms of liberal organization on a case-by-case basis, and using the standard of Pareto optimality as a benchmark, we can compare the dangers of concentrations of power without focusing so much on the false “markets vs. state” dichotomy.
F.A. Hayek famously dedicated his book The Road to Serfdom “To the Socialists of All Parties.” My goal is to address “The Liberals of All Parties,” to offer a unifying comparative vision. This vision is not original to me, and in fact I have little of importance to add to what others have said. But I have noticed that liberals of the left and of the right all seem to dismiss the concerns and contributions of those who should by all rights be close allies; we need to be reminded of some things that I believe I can explain. Given the forces of illiberalism now arrayed against us, each of us needs all the allies we can get.
