第7号　特別寄稿

THE TRIUMPH OF ECONOMIC SCIENCE:
IS FUKUYAMA WRONG AND, IF SO, WHY?
James M. Buchanan

James M. Buchanan

　Ⅰ. Introduction

　Francis Fukuyama's book, The End of History and the Last Man(199l) has stimulated too much criticism of its details and too little discussion of its nobler themes. Fukuyama's Hegelian theses involve two components. Liberal democracy and the market economy describe the social order that the dialectic of history has finally produced. But the two components of this order find their separate legitimizations. Liberal democracy offers the only politics that can, even proximately, deliver to persons a felt sense of individual dignity, worth, and respect on terms of equality, even as roughly defined. On the other hand, the market economy represents the institutional embodiment of the long delayed but not universalized acceptance of the scientific truth of classical political economy. "Economic science," defined in its most inclusive sense, has finally carried the day. The social science equivalents of the flat earthers have been put to flight.

　In this short paper, I want to concentrate attention on the Fukuyama thesis concerning this ultimate triumph of economic science. I shall discuss the companion thesis dealing with liberal democracy only as it relates to the organization of the economy.

　To what extent have the revolutionary events of 1989-91 finally falsified the scientific hypothesis that a collectively controlled and managed economy can produce and distribute economic value in any measure remotely comparable to the results emergent in a market economy? To what extent has the empirical evidence been effective in causing skeptics to acknowledge the central truth of economic science? Does the falsification of the collectivization hypothesis carry with it the understanding and acceptance of the alternative hypothesis that embodies the predicted working properties of market organization? In the absence of the underlying ideology of "scientific socialism" working its way through history, can pragmatic collectivist arguments successfully counter those advanced from within the corpus of economic science, as such?

　There are questions worth discussing, and, perhaps not surprising to those who may know my own works, I find myself somewhat more sympathetic to Fukuyama's thesis than many of his critics. I hold no naive trust in the persuasive powers of scientific truth, and especially as applied to deliberative institutional change, an attitude that Fukuyama on some reading might be interpreted to express. In the social sciences in particular, there are forces that make for scientific inefficacy, forces that have, until quite recently, been almost wholly absent from the natural or hard sciences. On the other hand, and by contrast, I cannot think that we have yet observed the effects of the removal of the ideological crutch that the socialist ideal offered to all collectivizing efforts, even for those that seemed to be most blatantly motivated by factional interests.

　Ⅱ. Natural Liberty and the Wealth of Nations

　A summary overview of classical political economy may be useful. The great scientific discovery of the eighteenth century was that of the spontaneous coordination properties of the market economy. If persons are left to act in their own interests, whatever these may be, within a legal framework of private property and contract (see Part III below), the wealth of a nation will be maximally enhanced, if this wealth is defined in terms of the evaluations that individuals, themselves, place on goods and services. The market economy is, in this sense, "efficient," but more importantly, because the market, in its totally decentralized fashion, carries out the allocative-distributive function, any need for collectivized or politicized management of the economy is obviated. The "natural," proclivity of the scientifically uninformed is to think that, in the absence of management, chaos must result. The task of economic science, or more appropriately, of political economy, became, and remains after more than two centuries, one of conveying the general understanding of the coordinating properties of markets in increasingly complex institutional reality.

　This central idea of "order without design," or consequences that are not within the intent or choices of any person or group, was indeed a discovery of momentous proportion, and, in retrospect, we should be able to appreciate the genuine excitement that was shared by the classical political economists. But, as with many new ideas, the first stages of discovery involve vague and intuitive understandings that emerge well in advance of formal proofs, whether logical or empirical. Classical political economy was, and remained immature and incomplete in its particulars, and was, in part for this reason, highly vulnerable to critics, and perhaps especially due to the excessive enthusiasm of its own adherents. The bridges between the validity of the central idea and its application to institutional reality were not well or carefully constructed, and the disparities between the idea and reality were seized upon, to great effect, by those who were able to work within the science itself to derive apparent implications that seemed to undermine such validity. I refer, of course, to the genius of Karl Marx, who was masterful in his juxtaposition of the apparently observable flaws in the workings of the imperfect institutional reality of early industrial capitalism with the logical implications of those elements of the classical model that were precisely most in need of correction and revision.

　The triumph of classical political economy, if indeed triumph could be claimed at all, was both short-lived and geographically confined. The "discovery of the market," as an institutional-organizational alternative to collectivized management of economic interaction, was embodied in the British politics of the nineteenth century, illustrated in the repeal of the Corn Laws and the opening of markets across national boundaries. The classical understanding also informed the thinking of the American Founders, and United States constitutional history over a century and one-half did operate to constrain the politicization of the economy. To a lesser extent, liberal forces, in continental Europe and elsewhere, motivated by the classical idea, emerged in continuing opposition to the developing socialist ideal. But, despite the empirically observed successes, as evidenced in British growth in the nineteenth, and American emergence in the twentieth century, the idea of the market considered as a scientific proposition, did not succeed in getting established firmly for the two centuries following its discovery.

　Ⅲ. The Legal Order for Laissez Faire

　The classical political economists failed to develop their central idea with sufficient rigor and precision to insure against its vulnerability to arguments in support of ideas that were directly in opposition. In some part, this failure involved an insufficient understanding of and attention to the critical dependence of an effective market order upon the existence of an underlying legal-institutional structure or framework, which must, in some basic sense, be political in nature and origin. In a crude and naive interpretation, some of the classical advocates of laissez-faire, including some modern counterparts, seem to argue that markets emerge and work well quite independently of the characteristics of the legal order.

　Adam Smith did not make this mistake. He referred to the "laws and institutions," the existence of which is a necessary condition for market efficacy. Without well-enforced and widely-dispersed holdings of private property along with enforcement of binding contracts, a production-exchange nexus cannot function. In a more general sense, the market system of interaction operates only within a set of rules, a constitution, which itself must be explicitly political. But the classical economists, as well as modern social scientists and philosophers, failed to make the categorical distinction between political-collective action aimed at establishing and maintaining the rules, the constitution, within which the economic process takes place, and political-collective action that interferes with or attempts to replace the economic process itself.

　It is, of course, necessary to acknowledge here that disagreement may arise, even among scientists, concerning the appropriate dividing line between elements of a constitutional framework and politicized intrusions in a post-constitutional setting. Two areas of disagreement have described economists' discussion in this respect. First, does an operative market economy require constitutional enforcement and protection of competition? Are anti-cartel and anti-trust laws a necessary part of the legal order for laissez faire? Or do legal guarantees for freedom of entry and exit provide sufficient insurance against exploitation through collusion? Secondly, and perhaps more importantly, and especially in the context of Fukuyama's thesis, can a market economy function in the absence of explicit constitutional rules that guarantee predictability in the value of a monetary unit? Will the market, if left to its own devices, establish a monetary unit, and, if established, with such a unit possess predictability in terms of value through time? Or, is some monetary rule or set of rules a necessary complement to the efficient working of a market economy?

　Note that these two hotly disputed areas have offered the sources of much of the criticism of the market economy, and especially that advanced by the socialist critics inspired by Marx. The alleged tendency of unconstrained market forces to stifle competition through collusive arrangements, along with the vulnerability of the whole economy to cyclical fluctuations created by monetary disturbances-these have been employed as effective arguments aimed at demonstrating the failure of the idea of market order generally. Again, adequate recognition of the distinction between constitutional and in-constitutional politics would have allowed defenders of the central idea to acknowledge possible benefits from pro-competition framework rules and from the establishment of an operative monetary constitution. "Laissez fairewithin constitutional limits" is, and should be, recognized to be quite different from "laissez faire without limits." But does the failure of the socialist ideal imply that the relevant distinction here will be now easier to make convincing than was the case a century past?

　Ⅳ. The Fatal Conceit of Socialism

　F.A. Hayek entitled his last book, The Fatal Conceit(University of Chicago Press, 1989), referring explicitly to socialism as an organizing principle for an economy. This characterization is one-half correct. The serious consideration of socialism as a general scheme for economic order emerged as an unexamined notion from the presumptive arrogance of intellectuals who claimed to know something about the economic process. Given an artificial "understanding" of how an economy, as organized through markets, allocates resources and distributes products, and then observing alleged failures of markets to work in accordance with their idealizations, it seemed relatively easy for these intellectuals to imagine, to conceive, how an ideally-operative collective process could correct for all the "market failures," while, at the same time, accomplish the separation between consumption and production that had been the stuff of utopian dreams for centuries.

　We now know, of course, that those intellectuals who advanced the idea of socialism neither understood how markets do work nor took the elementary step of comparing less-than-idealized markets with less-than-idealized collective arrangements. Markets produce economic value if value is defined as that which persons, as participants in the process, themselves desire. The value scale upon which differing goods and services may be evaluated, one against another, emerges in the production-exchange process. Such a scale does not, and cannot, exist independently, and it cannot, therefore, be available for bureaucrats who may be procedurally directed to meet standards without meaning. Even more importantly, economic value must be brought into being by production. Value does not exist to be allocated among end uses. Production requires outlay of effort, mainly labor, and persons will make such outlay voluntarily only if they expect to secure a return flow of product value, in such form as they define to be valuable. This most elementary of all economic exchange is denied validity in the principle of socialism, as such, where the idealized arrangement is consumption without production. (See Buchanan, 1992.)

　Even if collectivization itself could work in accordance with some ideal model in which the bureaucrats themselves are totally benevolent, efforts at duplicating the operation of a market economy would surely fail for the basic reasons noted, as well as others that might be added. But it is perhaps easier to understand why economists blundered in their implicit analyses of markets than it is to understand why they, along with their intellectual fellows, adopted without question the presumption that collectivization in practice would correspond with the modelled ideal. Why were the bureaucrats who were to manage the controlled economy presumed to be immune to ordinary incentives? Who should have been surprised when bureaucrats in socialist regimes were revealed to enjoy the perquisites of authority and to seek to increase this authority through time? Who should have been surprised by the developing distinction between the classes, between the managers and the managed, a distinction that puts to shame any alleged worker-capitalist conflict in market regimes?

　If this were the end of it, I could end the paper at this point with the summary conclusion that Fukuyama is basically correct in his diagnosis. The fatal conceit that was socialism amounted to scientific-intellectual error that has now been put right. Markets are now much more fully understood. We know how markets create value through utilizing localized knowledge and how they channel incentives to insure that the value produced is the value demanded. We also know how schemes for collectivization-politicization founder on the shoals of incentive incompatibility.

　Ⅴ. Every Man His Own Economist

　Unfortunately, the fatal conceit of socialism is not the end of the argument. And recall that I stated that Hayek was only one-half correct in his assessment. The monumental scientific error that socialism embodied would never have attained its practical successes without the acquiescent support that was grounded in ascientific and unreasoned public attitude. Such an attitude stands as a barrier to any generalized acceptance of the supremacy of market organization in delivering economic value, and especially as this attitude seems relatively immune to either empirical or logical argument.

　I referred earlier to persons' natural proclivity to think that an economy must be "managed." The basic idea of an emergentorder arising from the separated but interdependent choices and actions of many participants seems counter intuitive to the ordinary citizen who thinks at all about economic process. Without someone in charge, without a manager or at least a management team, the noneconomist predicts chaos. And, since at least some patterns of order may be observed, the noneconomist is likely to impute managing roles to an elite, an establishment, or a clique in the absence of explicit political authority. For those who model the working of the market economy as the secret machinations of the "gnomes of Zurich," "Wall Street bankers," "the Trilateral Commission" or some other equivalent, the explicit take-over of authority by politicization seems both a small and a "democratic" step.

　This generalized public attitude that the economic process requires micromanagement which might as well be explicitly political is strongly supplemented by the related imputation of artifactuality to the operation of economic laws. Common reference is made to the immutability of the law of gravity in specific comparison to the law of supply and demand, with the latter being deemed subject to manipulation aimed to produce desired results. If a particular price that emerges from market forces is "too high" (or "too low") public attitudes tend to support political-collective action that, quite simply, sets price at some preferred level, as if such action arbitrarily settles the matter. This attitude carries with it little or no recognition that if market prices are not allowed to do their job, alternative means both of rationing supplies and calling forth production must be found. The necessary enhancement of the state's coercive authority tends to be left almost totally out of account. Even in those national economies that are not, and have never been, organized on socialist principles, there is no general public understanding of the "principles of economics." Such economies remain always vulnerable to politicization in the small, whether aimed at micro- or macro-management.

　The absence of understanding would not, in itself, lead to political intrusions that are so directionally biased were it not for the public presumption that, indeed, the operation of markets is within the working knowledge of everyone. "Every man his own economist" or "do it yourself economics" (Henderson, 1986) has been a characteristic feature of policy discourse since the professionalization of the science. Nowhere is this presumption more detrimental to the implementation of scientific analysis than in application to trade across national political boundaries. Even in settings where the citizenry, perhaps begrudgingly, acknowledges the efficacy of markets internally, there is likely to be the public conviction that the opening of markets to "foreign competition" is harmful. And even if direct management of the domestic economy is not politically in play, arguments for managed trade and industrial policy find widespread public support.

　Ⅵ. The Distributional Politics of Unconstrained Democracy

　Supporters of Fukuyama's thesis with reference to the relative superiority of market organization of economies might acknowledge difficulties in securing public understanding of the truths revealed in the socialist collapse. At the same time, these supporters may express a faith in the ultimate efficacy of empirical and logical argument, and especially in the absence of socialism's underlying ideological thrust. In this Section, I propose to raise what is perhaps a more damaging criticism of the Fukuyama hypothesis that does not depend on any public failure to recognize the findings of science. For purposes of the discussion here, we may assume that the principles of economics are fully understood, and that no one questions the relative superiority of a market economy to generate economic value in the aggregate. We may even go further and suggest that everyone may also recognize that any politicization of the market does enhance the coercive power of the state.

　In such a setting, an organizational regime that includes a viable market economy is clearly in each person's constitutional or generalized interest. At the same time, however, each person's differential or factional interest diverges from the generalized standard. Although all persons prefer a market regime for others, each person also prefers that his or her own industry, defined by product and resource category, profession, occupation, location, or other identifying economic characteristic be treated as an exception and protected from market forces by the agencies of politics.

　Despite the possible widespread understanding that a market economy does, indeed, generate a relatively larger value, in the aggregate, than any politicized alternative, persons behave rationally when they engage in the political game among factions. No person is likely to express primary concern about aggregate value when there exist apparent opportunities to secure differentially advantageous shares in somewhat less-than-maximal totals. Five per cent of a total of one hundred is larger than one per cent of a total of two hundred; the arithmetic is as simple as that.

　The impossibility that all claimant groups can succeed in getting differential treatment may be recognized, along with the overall effects of the political game. At the same time, however, the expected value of success may be such as to keep all groups in the continuing game. To return to the simple arithmetical illustration: even a fifty per cent prospect of securing five per cent of the total of one hundred exceeds the certain prospect of a "fair" one per cent of two hundred. And these odds are biased even further when it is recognized that, by opting out of the game among groups, the prospect of getting an "even shake" or "fair share" may be dramatically reduced.

　At this point, it should be clear that the two parts of Fukuyama's argument cannot be separated. The triumph of economic science will come to be practically realized only if the institutions of liberal democracy are those that reflect an understanding of the dilemma created by the disparity between factional or group interest and the general or constitutional interest. In this context, it seems singularly unfortunate that the collectivist urges that motivated the socialist piecemeal experiments in nonsocialist regimes, many of which were general in purpose and intent, provided a protective cover for the rapid growth of factional politics, best described as a distributive game among competing groups, each of which seeks a differentially advantageous share in economic value without regard to the general interest.

　This explosion of distributive politics, euphemistically called "the welfare state," particularly in the twentieth century, was aided and abetted by intellectual-academic failure to develop a behavioral science of politics itself (Buchanan, 1975). From its ancient Greek origins, the dominant political "theory" modelled politics as a continuing search for "the true and the beautiful" rather than as a set of institutions established to allow persons to act collectively in pursuit of their own interests, whatever these might be. In the conventional model, the emergence of "democracy" means only that all persons are allowed to enter into the discussion and to express views about what is "best" for the collective whole. And in this idealized conceptualization, the actual decision rule for terminating the discussion takes on relatively little significance. Majority voting rules in representative assemblies developed almost without any accompanying legitimizing analytical base. Given this history of ideas in political theory, it is not surprising that little or no attention was devoted to the desirability, or even the necessity, of placing limits on the range and scope for politicization through majoritarian democracy.

　Under the alternative (the "public choice" or "economic") model of democracy, in which persons seek to accomplish collectively those objectives that they consider less effectively achieved privately or individually, it is self-evident that public behavior through politics must be constrained similarly to private behavior. Just as it is illegal for one person to take another's private holdings, it must also be "illegal," in some constitutional sense, for one particular majority coalition to take the holdings of members of the opposing minority. A legal regime that protects a person's property from predation by other persons or privately organized groups but which allows such property to be taken by majoritarian political action does not describe a setting within which the market economy can function effectively. Persons will find it relatively more advantageous to seek rents or profits through politics than through production and exchange. Further, to the extent that politics, no matter how "democratic" the process might be, is distributionally driven, no economic value is created. And, indeed, economic value will be destroyed, or wasted, by the rent-seeking activities of those who participate in the inclusive distributional game. (See Tullock, 1967; Buchanan, Tollison, and Tullock, 1978.)

　Ⅶ. Constitutional Legitimacy, Generalization, and the Rule of Law

　Is it possible that the dialectic between the market and its collectivist alternative has run its course and that, in this sense at least, we can signal the triumph of economic science? Or can we predict that failures of public understanding along with rational pursuits of differential distributional interests will only produce the nonideological "churning state"? (de Jasay, 1985). That which seems to be missing from Fukuyama's treatment is the recognition that "liberal democracy" carries at least two categorically different understandings of its meaning, and that any triumph of economic science may be realized only on the acceptance of one of these alternatives. To what extent do the revolutions of 1989-91 have implications for the ultimate acceptance of that understanding of "liberal democracy" that is necessary for the effective operation of a market economy?

　An attempt to answer this question requires a separation between those societies where the revolutions occurred, where socialist regimes were displaced, and those societies which remain organized democratically but which are described as operating with more-or-less strongly politicized market economies. In the first group, there is strong public reaction against the observed history of bureaucratic excesses, and at least nominal support is given, provisionally, to privatization of holdings as a basis for the development of market economies. The institutions, whether those of democratic governance or a market economy, will not, of course, emerge in ready-made patterns comparable to those in Western regimes. But the countries of Central and Eastern Europe face the genuine opportunity to establish both liberal democracy and a market economy, based on the understanding that democracy must be reined in by constitutional limits.

　The situation seems quite different in the Western welfare states that combine democratic electoral procedures with distributive politics. Simple observation indicates that the political dialogue in these countries has been scarcely affected at all by the revolutions that have occurred. "Politics as usual" describes the state of play, and even the general movement toward privatization of government enterprise that seemed popular in the 1980's seems to have lost momentum.

　Such simple observation may, however, be deceptive. The anti-socialist revolutions may have provided the origins of the generalized public attitudes toward the excesses of distributive politics that we can begin to recognize. In the United States in particular, but also in Italy and elsewhere, there is strong public or citizenry opposition to politics and politicians, to the bureaucratic intrusions into the personal and economic affairs of citizens. In the waning years of the century there may well be opportunities to correct the understanding of liberal democracy and to put in place constitutional restrictions on the wastage of value generated by the distributional competition of factions.

　If Fukuyama's two-part thesis is to be corroborated, the politics of democracy must be reconstructed so as to remove differential distributional gains from constitutional legitimacy. Separately identified economic groups or interests must be constitutionally prohibited from taking political action (through majority coalition formation) that will provide differential benefits that are not enjoyed by all members of the inclusive polity. Democratic politics must be generalized in its effects, much like the long-acknowledged generalization expressed as the objective for the legal order. Particular persons and groups cannot be singled out for differential treatment, either beneficial or harmful, if the rule of law prevails, and, indeed, it is the absence of such treatment that defines the rule of law itself. Democratic politics must be brought within a comparable generalization principle, as expressly embodied in and enforceable through constitutional precepts.

　As generalized, democratic politics would allow persons to choose among alternatives in terms of their generalized interests rather than their differential factional interests. And, in the choice process, so constrained, we might predict that economies would be organized on market principles.

　In some summary analysis, the triumph of the science of economics in providing the foundation for the organization of economies through markets must be accompanied by a near-revolution in the understanding of what liberal democracy means. Without the ideological crutch that socialism provided, such a near-revolution in political understanding may be easier to accomplish than it now appears. Can the pursuit of differential factional interests stand exposure to the light that can no longer be altered through Marxist lenses of class conflict, bureaucratic benevolence, and the march of history? At the very least, those who reject Fukuyama's theses and who predict only the workings of the churning state will or should be stimulated to invest in efforts to persuade others that the "end of history" need not be so dismal after all.

　REFERENCES

Buchanan, James M. "Politics Without Romance: A Sketch of Positive Public Choice Theory and its Normative Implications,"IHS Journal, Vol. 3 (Wien, 1979), B1-B11.

_____________. "Consumption Without Production: The Impossible Idyll of Socialism" (Center for Study of Public Choice, Typescript, 1992).

Buchanan, James M., Tollison, Robert, and Tullock, Gordon (Eds.).Toward a Theory ofthe Rent-Seeking Society (College Station: Texas A & M University Press, 1978).

Fukuyama, Francis. The End of History and the Last Man(New York: Basic Books, 1991).

Hayek, F. A. The Fatal Conceit (Chicago: University of Chicago Press, 1989).

Henderson, David. Innocence and Design (Oxford: Blackwell, 1986).

de Jasay, Anthony. The State (Oxford: Blackwell, 1985).

Tullock, Gordon. "The Welfare Costs of Tariffs, Monopolies, and Theft,"Western Economic Journal, Vol. 5 (June 1967), 224-232.