It is impossible to exaggerate the enigma within the term “capitalism.” It is in fact one of those big concepts concocted by its enemies, indeed by its chief antagonist Karl Marx. To this very day its central concepts of market and “trickle down” are questioned from the American president to the pope. Even its supporters cannot agree on what it is or even when it began.
“Public choice,” of course, is just a highfalutin circumlocution for “politics.” But the name is usually applied to the leading neoclassical version articulated by James Buchanan and Gordon Tullock in The Calculus of Consent.
This theory has a number of obvious attractions for libertarians, which I will briefly describe. Unfortunately, because its drawbacks outweigh these attractions, it needs to be replaced by an updated version of what might be called the Founders’ older “theory of American public choice.”
The problem is by no means peculiar to the theory of public choice, but rather is a general one apparent in all branches of neoclassical economic theory. This requires some explanation.
Adam Smith’s Wealth of Nations was published the same year as the Declaration of Independence, and Hamilton was right to perceive a growing appreciation of its basic message among his countrymen. Smith wrote to dispel the errors of mercantilism. Hamilton wrote to keep them current. In particular, he was fond of Sir James Steuart, who represented Smith’s “chief foil.” Curiously, McCraw buries this in his footnotes at the back of The Founders and Finance. (383/4 n. 4) But McCraw is not at all hesitant to declare Hamilton a “first-class student of both economics and administration.”
Hamilton apparently saw “how everything in the national economy was related to everything else.” And “he saw that in the construction of grand strategy, every move must be coordinated so as to make the whole of public policy exceed the sum of its parts.” Hardly reserved in his applause, McCraw proceeds, “And this is what he proceeded to do as secretary.” (93) But one can take a different view, and in the matter of economic theory, one would be right to do so.