Fiscal Sociology and the Theory of Public Finance: An Exploratory Essay, by Richard E. Wagner

Edward Elgar, 2007, x + 228 pp, hbk, 1 84720 246 8, £59.95

Every science sets off from axioms: a set of unproven, and generally unprovable, hypotheses. Since Adam Smith, neoclassical economic science has set off from a hypothesis of perfect competition in a free market in private property. This turns public economics into a science based on market failure. Private trades thus become the norm and government action in the economy becomes non-normative. This is clearly nonsense because without a functioning public square to create a structure of security, contract law, education, and health, private trades would become unreliable and economics as we understand it would no longer adequately model the chaotic situation which would ensue.

Richard Wagner suggests a different starting point. There are various ways in which we can generate orderly patterns of activity: by individual trades in private property, by individuals relating to each other through the collective property which constitutes the state, and by relationships through property held in common by members of an association. This view sees government action as a particular realm of orderly action and not as an interference in some other set of actions regarded as normative.

Another axiom which the author questions is the market equilibrium which classical economic theory regards as normative. Wagner suggests that if public economics is a facet of social theorising (that is, if there is no clear boundary between economics and polity) then change generated by conflict between different social groups.becomes normative.

Following two chapters which provide an overview of Wagner’s approach, the central chapters of the book understand society as constituted by ‘political enterprises’ which compete with each other for resources to enable them to undertake their chosen projects. Chapter 7 then explores multiple levels of government and the competing public squares which result.

The final chapter understands taxation and government spending as so complex that ‘analytical coherence can be attained only through massive simplification in some form’ (p.181). The theorems of traditional welfare economics represent precisely such a simplification. In the real world, political cultures and fiscal arrangements interact with each other and, in particular, we can’t package utility into leisure and consumption as traditional labour market economics tries to do.

‘To approach life through the organization of meaningful activity, as against approaching it hedonistically through consumption, is to seek to reconceptualise welfare in terms of the interesting and challenging adventures that different systems of economic order allow people to have during the course of their lives. Such an alternative formulation would, of course, deny that consumption is the end of economic activity, and would convert consumption into a by-product concomitant of that activity. A Society in which people are having interesting and creative adventures will flourish, and what we call high consumption will emerge as a by-product of the activities that flourishing represents’ (p.195)

If how people relate to each other and the competencies they are encouraged to develop are allowed to be factors in the construction of welfare economics, then, says Wagner:

‘A system of designated accounts over which people have ownership creates a relationship among equals. In contrast, existing social security programs involve relationships of domination and subordination, within which supplication becomes a standard mode of conduct’ (p.196)

This is an important book.