Review 1: Property Rights and the Limits of Democracy, edited by Charles K. Rowley

Oliver Binet,
University Basel,
Kyklos 479-481 (1994)

"It is commonly stated that democracy is the natural political complement of a market economy. Freedom of trade in the economic sphere might seem to be complementary with freedom of participation in the political sphere. This seems especially true at a time when Eastern Europe is breaking from dictatorship and planned economy. However, there is a growing body of literature on public choice that expresses doubts on this common belief. Democracy tends to penetrate the free market, introducing a mercantilist economic order.

One of the principal reasons of the evident bias of the political process is that voters who are concentrated and well-informed on issues that are significant to them may overcome voters who are dispersed and ill-informed on issues that are less directly relevant to them. This, and other determinants pointed out by authors such as OLSON are the reasons for the political vacuum into which special interests penetrate in order to capture rents, to the general detriment of society as a whole. Thus, a prisoner's dilemma seems to be present: All members of a society are better off living under the competitive institutional order, than they are living under an inclusive mercantilistic order. But through democratic decision-making a minority will capture rents, spreading the costs thinly over the large majority. In the absence of constitutional constraints democracy will typically result in less market and liberty, and more bureaucracy and 'dictatorship', this the pessimistic view for example of DE JASAY.

The resulting oppressive order will weaken its economic and thus military power, raising internal tensions which may erupt in the form of a coup d'etat displacing dictatorship and state property (as illustrates the recent experience of Eastern Europe). This kind of analysis suggests the existence of long-term cyclical movements from one kind of political economy to the other. The implication is therefore, that constitutional limits must be drawn to limit the interference of democracy into the domain of property rights. But this seems not an easy task, since even the constitution of the United States failed to overcome the "tyranny of the majority" so feared by the Founding Fathers. As BUCHANAN concludes: 'The omnipresent confusion that has corrupted Western attitudes and that threatens to close off the opportunities now presented to emerging post-socialist societies involves the failure to recognize that 'constitutional' must be placed in front of the word 'democracy' if the political equality of individuals is to be translated with any meaningful measure of freedom and autonomy' [p. 59].

Public choice theory has much to contribute to the understanding of the difficulties of implementing and maintaining a liberal constitutional order. Property Rights and the Limits of Democracy presents essays by four eminent political economists on this theme. In the first essay 'Property as Guarantor of Liberty' JAMES M. BUCHANAN grounds the defence of private property ownership. His central argument is that private property, beyond that it permits efficiency in resource use, serves as a guarantor of liberty. Independence from the effects imposed by the behaviour of others is improved by private property.

How the political system permits the interference of mercantilism into the economy is the content of the second contribution, 'Rent Seeking' from GORDON TULLOCK. He expounds on his research programme since his 1967 paper, 'The Welfare Costs of Tariffs, Monopolies and Theft' in the Western Economic Journal and rent seeking theory in general.

In the next essay, 'Parchment, Guns and Constitutional Order' RICHARD E. WAGNER demonstrates why the 'tyranny of the majority' cannot be overcome by a written constitution unless the institutions of society are designed to offer complementary support to the limited government and the rule of law. One way suggested by the author refers to the notion of an 'entrepreneurial state' advanced by WICKSELL where active politicians and legislators look for new ways of providing services, much as private entrepreneurs.

In the final contribution, CHARLES K. ROWLEY retraces the development of economists' thinking about the theme 'Liberty and the State'. In his view 'utilitarian ideology' is the perfect ideology for the activist state which subtly extends into notions of distributive justice. He remembers the fundamental conflict between Pareto principle and liberal philosophy as pointed out by SEN in his 'impossible Paretian liberal theorem' and suggests the way back to classical liberal philosophy. His conclusion corresponds to that stated last century by DE TOCQUEVILLE: The combination of good character and sound moral precepts with an excellent constitution is the only way to avoid DE JASAY's pessimistic prediction.

To conclude, it is worthwhile to ask: What is really new in this volume? In the end quite little, since all authors defend classical liberal philosophy (referring themselves particularly to JOHN LOCKE) which indeed is not a very new concern. However, the aim of this volume (note that the four essays are also available in single paperback editions) mainly is to recall what already has been said, making use of the contributions from public choice theory from the last decades."