Intro to Political Economy Without the Labels

Let’s consider two political-economic theories. Since the terms normally used have been hijacked so that there are too many emotional connotations, it is hard to get anywhere with the common terms (unless you’re talking to an audience willing to do a bit of research). Rather, I would like to describe two types of competing theories without using potentially misleading terms. So, here it goes (I won’t reveal which theories are which until the end).

Both theories have moral and empirical dimensions. The moral issues relate to whether a given action or policy is just or unjust. The empirical dimension relates to whether a return-on-investment is ‘worth it’ (generating the effects that are aimed at, considering the cost). The empirical dimensions are in some ways easier to decipher but in other ways very easy to be misled. The misleading data usually relates to inappropriate conclusions from data or cherry-picking pieces of data that distort the interpretation of the whole.

Theory I

Theory I has a historical-moral foundation about how State governments have ‘gone wrong.’ This would include all of the major civilizations, from ancient Rome, through the feudal states of medieval Europe. The rough idea is that governments have a specific purpose, and this purpose is to respect boundaries that come from human nature and/or God. The governments throughout human history go wrong precisely in that they take on tasks that are outside of their proper bounds. So, here we have a theory of government that also connects to a theory of ethics. The ethics portion relates to the evil of coercion. Since it is evil to coerce another free person to do what you want, against their permission, and these theorists sought to minimize social evil, they sought to minimize coercion. Their solution, then, was that original coercion (violence and force) is the only justification of government force, so that only when there is force initiated by someone, is the government then–and only then– within their proper place to use force against the offenders that initiated the force. In sum, Theory I is about the minimization of force and coercion, and thus also, keeping the State in its proper bounds, so that it doesn’t go rogue (serving the ruling elites instead of its citizenry).

This has been the moral dimension of Theory I

Theory II

Theory II is more difficult to explain because the moral and empirical dimensions are overlapping and confused. Where the return-on-investment is concerned, if the results are favorable, then the moral standard is satisfied. So, in Theory II’s conception of moral justification the very fact that it promises to produce a given result satisfies both the empirical and moral standards (since the moral and empirical issues overlap). The concern for coercion is either minimized, or held to be radically different from the depiction made by Theory I. Theory II advocates emphasize favorable aspects that make human societies better, and adopt the policy that they think promises the best outcome without any concern for coercion, since in their view the coercion is justified if the outcome is favorable. For instance, taking money from the rich is permissible, even if they came about their wealth through perfectly just ways, such as hard work, long-term investment, and family cooperation.

Lady Justice, Case-Law, Right, Scale, Court

Evaluating the Two Theories
These theories operate on different theories of government, justice, and economics.

The first theory aims to minimize coercion, with clear boundaries of the State’s job. The second theory aims to maximize well-being, regardless of theory I’s worries about justice. According to Theory II, it is just if everything is equal, no matter if there needs to be coercion for ‘make it happen.’ Correspondingly, according to Theory II society is unjust if there is too much inequality, regardless of the historical cause of the distributions. Theory I is not worried about differences of outcome per se as long as all transactions are historically just, and there is no coercion.

Theory I’s account of justice fits perfectly with our basic moral intuitions, but Theory II’s account does not fit. For instance, if I give a million dollars to an orphanage, then Theory II would endorse this policy. The fact that the money was stolen from a bank does not matter to Theory II. Theory II regards the State as a kind of super-moral authority, above regular citizens (somehow the ‘whole’ has some special power over individuals if it is for the ‘common good’). On Theory I’s reading of justice, this is not the case. Only if the bank first stole the money, could it rightly take the money, and even then, it would be expected to return it to its rightful owners. Theory I does not regard the State as a super-moral authority. Rather, it is a servant of people, with very tight reigns on its proper sphere. It can only coerce when coercion was initiated towards its citizens first, without which, it cannot justly do anything.

This is the thumbnail sketch of the moral dimensions of Theory I and II. The empirical dimensions are about what actually happens when these ideas are put into practice. As mentioned, this is both easier in one sense and much harder in another sense. For instance, a country might call themselves Theory I or II, but defenders of a given theory might deny that they ‘really’ are specimens of their professed doctrine. This can be frustrating because it would be nice to simply look at history, and say, ‘that has been tried, and it failed horribly.’ It becomes even more complicated when popular audiences don’t precisely know what the key aspects of these theories look like, so one side can blame the other, and the reverse, simultaneously. In fact, this uncomfortable and frustrating fact is part of the motivation for writing this short piece.

There is a lot of data to support the fact that Theory I actually provides better results than Theory II, on empirical grounds, but this argument should be kept separate in our minds. The moral argument for Theory I stands alone, and if right, shows that Theory II is immoral at its root (regardless of what is promises or delivers). There are great worries about Theory II on empirical grounds in that the overall aim of Theory II does not actually occur. The core problem though, considering that most people will not sort through the data and the competing works of literature, is that improvements are happening in the world, regardless of the policies in place. For instance, sometimes a policy can be instituted, where the target effect is getting better without the policy. Think of technological improvements. You can imagine a sneaky CPA siphoning out money from a very successful account, but only when great gains are made. Since the great gains are still seen, the unseen portion of the theft is left unattended. In short, bad policies may have damages and injuries to a system, even though nobody knows about them because it isn’t about what is obvious, rather, it is seeing the contrast to what would have been otherwise. (for an excellent discussion along these lines, see Bastiat).

Statue Of Liberty, Landmark, Liberty, Statue, America

Beyond this introductory analysis, one would need to consider economic theories in light of the 20th-century history, especially theories of value (labor theory vs productive-competitive theory), the competing theories of libertarianism and egalitarianism, and the problems associating to making decisions in groups (the information problem).

I will be adding additional links below for articles and books, for those that are interested in getting a more in-depth understanding of the issues. If you didn’t surmise this already, Theory I represents the libertarian free-market doctrine, and Theory II represents the socialist-egalitarian doctrine. Allowances must be made for ignoring many nuances that exist within any philosophy of political theory. Advocates of both sides might seek to correct things in this brief article, but brevity requires broad strokes. There are important variations of both positions. However, if the Libertarian theory is right, then the big-state egalitarian is wrong, on moral grounds. Secondly, there is a mounting body of evidence that the free markets are simply better at delivering prosperity than socialist-egalitarian policies. Again, there are difficulties for us in deciphering the data though, since one part of a thriving society might obscure the fact that injustices are being made, and citizen’s rights are being trampled.

Related Issues for Research:

Theory of Value, Theory of Alienation, Misunderstanding Boom/Bust Cycles, Centralization Problems: (1) Information (2) Incentives (3) Totalitarianism,
Hayek: The Road to Serfdom: Text and Documents–The Definitive Edition (The Collected Works of F. A. Hayek, Volume 2)

For strictly philosophical arguments: Rawl’s Egalitarianism: A Theory of Justice, Nozick’s Anarchy, State, and Utopia

Digiprove sealCopyright secured by Digiprove © 2019 Steve Byerly