Improving Madison by ‘Constitutional Economics’ : ECONOMICS : Between Predictive Science and Moral Philosophy <i> by James M. Buchanan (Texas A & M University Press: $48.50; 448 pp.) </i>

Economics is not one of the sciences for which Alfred Nobel set forth his prizes. It is a prize named in his honor in 1968 by the Swedish Central Bank, to commemorate its 300th anniversary, and awarded amid controversy annually since then.

James Buchanan won the “Nobel” Prize for Economics in 1986. He did not win it for any breakthrough in economics. For there have been few unquestioned breakthroughs in economics, and those that have been made are as abstruse as a mathematician’s proof. Indeed, they are a mathematician’s proofs.

In fact, if you were to ask Buchanan why he won, he would insist that his contribution was to restore to economics the real aims of its 18th-Century founder, Adam Smith: the real aims, and not the aim of rationalizing laissez-faire capitalism so often attributed to him. For Smith’s subject, according to Buchanan, was the study of constitutions, of ways governments are organized, and how their organizations might be improved to everyone’s advantage. This is a discipline Buchanan calls “constitutional economics.” This important book brings together many of his papers, some popular, many technical, on this subject.

When the announcement of the Nobel Prize was made, the feature articles on Buchanan identified him with the school of “public choice” economists. “Public choice” is a curious misnomer. For the subject is in fact the exploration of how the private choices of bureaucrats, politicians, and voters produce the successes and the failures of public institutions. Public choice theory assumes that individuals make political choices in the same way they are supposed to make economic decisions, as utility-maximizers--egoists always looking out for No. 1. The results are laws, budgets, policies, that reflect what legislators think voters will reward at the next election, not what they think voters should reward.

In one of the most topical papers in this collection, Buchanan explains why democratic governments prefer spending to taxing, even when the Keynesian theories tell them not to. Individual legislators set their own private interest in reelection above the public interest. Instead of counterbalancing recession-curbing deficits with surpluses during inflationary booms, they just go on building deficits, because reducing voters’ benefits never got anyone reelected.

Public choice theory has explained how by strategic voting, agenda setting, and coalition formation, minorities can out-maneuver majorities, even in democratic countries where, in principle, the majority rules. So, the question arises, how can we reform democracy, in the light of these tactics, so that the outcomes of democratic processes reflect the interests of all voters more fully.

The study of these rules is “constitutional economics.” It is for recognizing the importance of these questions, and for beginning to search for answers to them, that Buchanan was awarded the Nobel Prize.

One thing to be said for Buchanan’s “constitutional economics” is that it turns the chief weakness of economics as a science into one of its peculiar strengths.

Economics deserves to be called the dismal science not just because of Thomas Robert Malthus and his views about the grim economies of population growth but also because it begins with the assumption that every choice we make reflects our desire to increase our own welfare. Even the noblest altruism, like Mother Teresa’s, is just a way of attaining her own peculiar sense of well-being. Not only is this idea uncharitable, it is also implausible. It’s just false that we are always looking out for No. 1. And this makes economics not only dismal, but also doubtful. Economics is often accused of failing to predict what we want it to, and the diagnosis is usually that its theories begin with false and unrealistic assumptions about people.

Whether this is a sound criticism of conventional economics or not, it is one that does not bedevil “constitutional economics.” In the design of institutions, the safest assumption to make is that people will be as selfish as possible. For it is the unwanted consequences of the selfishness of others that we all want most to avoid. So our political institutions should be designed to work even if people were relentlessly selfish in their choices.

It was a worst-case scenario, about how political power could be misused to serve individual self-interest that motivated Madison in his design for the U.S. Constitution. For his time, Madison did well.

But 200 years has shown that his constitution was imperfect. “Public choice” economics, more than any other intellectual discipline, has explained why. With the explanation goes the obligation to show how we can improve on Madison.

Buchanan’s attempt to do so is neither predictive science nor moral philosophy. It isn’t predictive science because it doesn’t pretend to trace out how actual individual interests produce economic phenomena, only how they might affect political outcomes. It isn’t moral philosophy because its aim is not to identify the morally best constitution, but rather the one that will reconcile our individual interests most fully, whether those interests are morally worthy or not. Whence the title of this valuable collection of papers.