The paper develops a Veblen-inspired critique of the foundations of constitutional economics. The paper also discusses a key aspect of its policy agenda. In recent years, that agenda has focused on tax and expenditure limitations, which are often promoted as voter initiatives. It is argued that this tradition in economic thought involves a fundamental misunderstanding of classical political economy. This error leads the tradition to reject all natural law preconceptions only to embrace the classical natural law preconception. James Buchanan's theory is used as the focal point of this line of criticism. Beyond this, some implications of Veblen's own economic theory are drawn out and applied in further criticism of the policy agenda emanating from constitutional economics.
Constitutional Economics and the Classical Tradition
To his credit, James Buchanan, a leading figure in constitutional economics, is clear that research within his paradigm cannot proceed without its preconceptions; and that failure to accept these preconceptions impedes meaningful participation in that community's dialogue. Using "Lakatoesian" terms, Buchanan describes constitutional economics as a community of researchers who share in common their collective endorsement of the following set of "hard core" preconceptions:
* Classical political economy
* Contractarian philosophy
* Methodological individualism
* Bounded rationality
Buchanan interprets classical political economy, particularly in the vein of Adam Smith, not as an exercise in anticipation of utilitarianism but rather as an expression of contractarianism. His idea is that Smith wanted to compare two constitutional orders, merchantilism and laissez faire. Smith's conclusion, in Buchanan's apprehension, was that free exchange works best as a means for individuals to satisfy their own needs as they interpret them (1990, 10). On this account, "[t]he laws and institutions that define the economic-political order become the variables subject to possible adjustment and reform" (1990, 11). Buchanan perspicuously sees that "[t]he categorical distinction between choices among rules and choices within rules all but disappears in the utilitarian configuration," whereas the contractarian theme offers "a wholly different avenue for moving from the individual to the collective levels of choice" (11).
Buchanan distinguishes what he calls the maximizing paradigm from the exchange paradigm, where both possibilities are latent within classical political economy. The former involves "classical utilitarianism," where "interpersonal comparability and aggregate measurability of utility were not explicitly rejected" (11). Buchanan's exchange paradigm, on the other hand, rejects all "supraindividualistic" valuation principles, depending instead only upon the idea that individuals know best what is right for them. Thus, in his apprehension, classical political economy anticipates methodological individualism, as he conceives it in this subjectivist vein.
He goes on to argue that critics of methodological individualism cannot succeed merely by arguing that individuals are irreducibly inter-subjective. Such critics must eliminate the individual entirely, by subsuming the agent into the collective. This is what he calls the "communitarian critique" of methodological individualism (13). At first glance, Buchanan seems to be posing a false dilemma, which eliminates all middle ground between collectivism and individualism. However, upon closer inspection, something more can be seen in his argument.
While methodological individualism means different things to different people (Hodgson 2004, 16-23), the key to Buchanan's individualism seems to be that it is essentially a moral theory as distinct from a causal theory. He does not claim that the causation of social structures is somehow reducible to given individuals or that individuals are in some sense ultimately autonomous from social influences. Rather, the individual, as distinct from any external authority, is properly regarded as the ultimate arbiter of what is right for the...