Public Choice and The Firm

Some readers may be interested in this little exchange I had with Charles Rowley a few weeks back. Admittedly, I started the commentary with a bit of a snarky entrance, asking how the “Dean of Public Choice” could allow his heart to be captured and uplifted by a politician’s speech(more precisely, the speech of a politician’s wife). However, what followed was civil, and it perhaps sheds some illumination on the methodological differences between “classical liberals” and libertarians.

An important question is why “classical liberals” often seem to have a natural alignment with conservatives? My methodology, which I would deem to be consistent with “classical libertarianism,” finds this alignment to be fatal. But we are given a clue by Rowley’s rejection of the method of “The Firm.” Indeed, Rowley (although he is an admirer of de Jasay and counts him as a good friend) rejects de Jasay’s inclusion within the public choice discipline. Rowley writes:

Jasay’s work is not public choice. Jasay deals with an organic state, not methodological individualism. What would you do if you were the state is his question. There is no such thing as a state. Only a collective of individuals.

I would dispute Rowley’s contention. I think the agency of The Firm is quite real and apparent. Would one likewise say “there is no Microsoft or Google, there is only a collection of individuals?” Indeed, I would submit that the agency of The Firm(as a type of DRO) is a natural consequence of economic rent-seeking. And I would apply this consequence to both political economy and “the free market” by simply adopting the very generic definition of economic rent as “returns in excess of opportunity cost (noting, however, that a legal structure of the firm does not necessarily equal the limited-liability corporation. A DRO can have an arbitrary structure, although a certain degree of verticality and hierarchy is implicit).

In a comment, I outlined a long-winded microeconomic foundation for the Agency of the State. This agency is real. But we can arrive at it via a microeconomic method. As I like to say, I can draw line from Public Choice to de Jasay to the class theory of the French Laissez Faire economists.

Interestingly, in the place of The Firm, Rowley advocated an alternative model of “The Prince,” which is the name I bequeathed to the method that emerges from “The Dictator’s Handbook.” I have not actually the read the book, but it is clear(from reading reviews and Rowley’s comments) that The Prince has universal application–it applies to both institutions of State and Civil Society. So to save “methodological individualism” as a method(almost treating it as an end to be preserved rather than as means), Rowley appears willing to dispense with a compelling insight of liberal social theory: individuals with different interests and ends can nonetheless use reason as a tool to coordinate these interests to mutual advantage.1 This insight simply cannot survive The Prince.

Once again, “classical liberalism” derived from a Public Choice method constrained by the classical liberal bounds regarding the agency of the State is simply not coherent.

1 The Better Angels of our Nature


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