Wicksell and Wicksellian Extensions

Wicksell and Wicksellian Extensions

Swedish economist and reformer Knut Wicksell was probably the most important early progenitor of contem­porary public choice. In his long essay of 1896, "A New Principle of Just Tax­ation," Wicksell attacked the orthodox approaches to public finance and si­multaneously laid the groundwork for both normative and positive public choice. In a concern for how decisions in the public sector are reached, Wicksell emphasized the dual nature of the fiscal side of the economy. In his view, normative comments concerning the welfare effects of alternative tax systems were of no value unless the expenditure side of the fisc (benefits to taxpayers) was simultaneously considered. "Most importantly," as Professor Buchanan has pointed out, "Wicksell admonished economists for their failure to recognize the elementary fact that collective or public-sector decisions emerge from a political process rather than from the mind of some benevolent despot" ("Public Finance and Public Choice," p. 385).

As the title of his famous paper suggests, Wicksell was most concerned that a fiscal system conform to justice and efficiency. In his view justice and effi­ciency demanded unanimity among all parties that participate in public-sector decisions. Wicksell was clear on this matter:

When it comes to benefits which are so hard to express numerically, each person can ultimately speak only for himself. It is a matter of comparatively little impor­tance if perchance some individual secures a somewhat greater gain than another so long as everyone gains and no-one can feel exploited from this very elementary point of view. But if justice requires no more, it certainly requires no less. In the final analysis., unanimity and fully voluntary consent in the making of decisions pro­vide the only certain and palpable guarantee against injustice in tax distribution. The whole discussion on tax justice remains suspended in mid-air so long as these con­ditions are not satisfied at least approximately ("A New Principle," p. 90).

State activity in Wicksell's view must thus be of general usefulness, and more, the sacrifice must be weighed against the expected utility of the project. Whether individuals favor a project or not depends on a number of variables, e.g., one's position in the income distribution, relative tastes for private versus public consumption, and subjective evaluation of the public project. The tax-price distribution of the costs will determine whether the project would be ap­proved or not. Some distributions of costs would win majority approval and others would not. In a slap against "authoritarian" tax allocations, Wicksell argued that alternative financing and spending proposals should be submitted to the public for vote. Wicksell then argued that it would be possible, theoret­ically, to find a distribution of the costs that would produce unanimity. Any other results would provide, in Wicksell's words, "the sole possible proof that the state activity under consideration would not provide the community with utility corresponding to the necessary sacrifice and should hence be rejected on rational grounds" ("A New Principle," p. 90).

Although no other principle would be "just" in Wicksell's positive notion, he did recognize that unanimity, though ideal, was not to be expected in any practical circumstance. Society is then faced with a set of voting-rule options, none efficient in Wicksell's ideal sense. This apparent impasse set the stage for a notable development in the modern literature on public choice. In The Cal­culus of Consent, published in 1962, James Buchanan and Gordon TuUock an­alyzed less-than-Wicksellian-optimal rules within a framework of methodolog­ical individualism. Within this positive (value-free) framework, Buchanan and Tullock modeled the calculus of a utility-maximizing, rational individual as he or she faces the choice of constitutional design. In their model, a "con­struction" is simply a set of rules decided upon in advance that determines the manner in which future action will be conducted.

The institutions of collective choice making in the Buchanan-Tullock con­ception are themselves variables. Buchanan and Tullock argue that:

The constitutional choice of a rule is taken independently of any single specific de­cision or set of decisions and is quite rationally based on a long-term view embod­ying many separate time sequences and many separate collective acts disposing of economic resources. "Optimality" in the sense of choosing the single "best" rule is something wholly distinct from "optimality" in the allocation of resources within a given time span (Calculus of Consent, p. 95.).

Optimality, or the determination of the "best" decision rule (one of which could be majority rule), takes place in the presence of individuals' uncertainty concerning their future preferences about a series of individual collective acts or proposals to be voted upon. Given such uncertainty about the nature of fu­ture preferences, individuals may vote on criteria unrelated to their respective position in income distribution. Optimality in the more "dynamic" Buchanan-Tullock framework does not mean the same thing as in the time-constrained decision-making model of Wicksell. Strict unanimity is required for optimality ("justice") in Wicksell's conception, whereas the choices facing the Wicksellian community are later in time than the constitutional choices ana­lyzed by Buchanan and Tullock. At this earlier point a voting rule that is nonoptimal from a Wicksellian perspective can be optimal in the presence of future preference uncertainty. Buchanan and Tullock thus provide a theory of constitutions and a design of political institutions that augments the unanimity rule as the sole criterion for efficiency in the narrow Wicksellian sense. Their analysis, especially when combined with the norm of "individualism," has had a large impact on contemporary research on political behavior and institutions.