Page 42 - Global Political Economy_Understanding The International Economic Order

THE NATUR E OF PO LITIC AL ECO NOMY
omists, especially Buchanan and Tullock themselves, is distinguished
by its explicitly normative commitment to unfettered markets and
strong opposition to government intervention in the economy. While
some economists emphasize market failures as a reason for govern-
ment intervention in the economy, the more conservative branch
of public-choice economics considers government failure—that is,
economic distortions caused by the policies of governments—to be
more of a threat to economic well-being. Politicians and government
officials are not the disinterested public servants they are assumed to
be by many economists and advocates of government intervention-
ism; they have interests of their own that they seek to maximize in
their public activities. This position asserts that politicians, liberal re-
formers, and others distort the efficient functioning of the market as
they use the apparatus of government to further their own private
interests.
Neoclassical institutionalism is one of the most interesting develop-
ments in contemporary economics. According to neoinstitutionalist
economists, economic institutions (and other institutions, including
the state) and their characteristics can be explained by the methods
of neoclassical economics. Nobel Laureate Douglass C. North, one of
the foremost representatives of this school, maintains that economic
institutions (like all forms of economic activity) are the consequence
of intentional actions by rational individuals to maximize their eco-
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nomic interests. Economic actions may be motivated by the desire to
increase economic efficiency or may be simply rent-seeking. However,
there is a predilection among neoinstitutionalists and other econo-
mists to assume that economic institutions have been produced by
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rational efforts to increase efficiency. This neoinstitutionalist school
is weakened by the fact that it overlooks the noneconomic factors
responsible for the creation of social institutions and the rules govern-
ing societies.
Most mainstream economists frequently use the term “political
economy” pejoratively to refer to the self-serving behavior of individ-
uals and groups in the determination of public policy. According to
the “new political economy,” national policy is most frequently the

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Douglass C. North, Structure and Change in Economic History (New York: W. W.
Norton, 1981); also, North, Institutions, Institutional Change, and Economic Perfor-
mance (New York: Cambridge University Press, 1990).
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A notable example is Richard A. Posner, The Economics of Justice (Cambridge:
Harvard University Press, 1981). A valuable critique of neoclassical institutionalism is
Alexander James Field, “On the Explanation of Rules Using Rational Choice Models,”
Journal of Economic Issues 13, no. 1 (March 1979): 49–72.
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