Let us start with two broad definitions of economics.
Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.
(Alfred Marshall, Principles of Economics, ([1890] 1930:1)Economics is the science which studies human behavior as a relationship between ends and scarce means that have alternative uses. (Lionel Robbins, An Essay on the Nature and Significance of Economic Science, 1932:16)
These two definitions, the former stressing material well-being and the latter efficient allocation, recall two of the three approaches to economics discussed earlier in the book. The former definition, offered by Marshall in Principles of Economics, conforms to the idea of economics as material provisioning to satisfy needs and wants. If we broaden Marshall’s definition to include nonmaterial means, we have an idea of the economy, or economic processes, that is concerned with wealth, its production, distribution, and consumption. The latter definition has to do with adapting means to ends. Economics here is defined more abstractly, in methodological terms. Economics does not refer to particular kinds of activities but to a distinctive way of adapting resources to ends.
It is this second definition that becomes central to this chapter. Once we abstract economics from economic activities, using the term to characterize situations of choice and scarcity, the door opens to an expanded domain of economics. As Becker puts it:
The definition of economics in terms of scarce means and competing ends is the most general of all. It defines economics by the nature of the problem to be solved, and encompasses far more than the market sector or “what economists do.” Scarcity and choice characterize all resources allocated by the political process (including which industries to tax, how fast to increase the money supply, and whether to go to war); by the family (including decisions about a marriage mate, family size, the frequency of church attendance, and the allocation of time between sleeping and waking hours);
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Table 1.
Economics and politics as method and substance| Substance | ||
| Economics | Politics | |
| Methods Economics | (1) traditional economic theory; maximizing behavior in market settings, price theory, allocative efficiency | (2) application of economic method of politics: public choice |
| Politics | (3) application of political methods to economics; power-distributional analysis within market settings | . (4) traditional political science; power- distributional analysis within political arena |
by scientists (including decisions about allocating their thinking time, and mental energy to different research problems; and so on in endless variety. (1976:4)
In this chapter we introduce a new conception of how politics and economics relate to each other. In previous chapters, politics and economics were conceived in substantive terms. The subsequent theoretical task was to provide a coherent explanation of how these two domains affect each other. The economic approach to politics does not see political economy as the set of theoretical relations describing the connections between politics and economics. Instead, politics is considered economic - susceptible to analysis by economic method - insofar as political facts are characterized by choice and scarcity.
The relations between economics and politics conceived in substantive and methodological terms are illustrated by Table 1. Cells 1 and 4 refer to the traditional fields of economics and political science. Cell 1 is the intersection of neoclassical economic method and economic phenomena. It involves the rational pursuit of self-interest in perfect or imperfect market settings, the study of price movements and efficient allocation of resources.
The fourth cell defines political science traditionally conceived as the study of public patterns of power and authority within the state. Cell 3 is perhaps the most difficult to describe because it is unclear whether there is a distinctive political method and, if so, what it is. Without attempting to resolve this issue, we simply note that politics has often been associated with analysis based on power and distributional transfers or with attempts on the part of a community to constitute itself (to affirm its identity, to express itself publicly). Such attempts to isolate a political method do not succeed in achieving a degree of separation from the subject matter of politics parallel to the economic case.The second cell is the one of direct concern to us in this chapter. The application of economic methods to politics is evident in public choice theory, game theory (when applied to political actors or issues), and economic analysis of the law and political institutions.
The economic approach to politics requires us to break with the idea that political economy involves the interaction of political and economic spheres, arenas, or subsystems. Political economy is not about “what happens” when political and economic phenomena collide; it is the application of economic reasoning to political processes. A substantive conception of the political is retained, while economics is interpreted formally as conformity to the rules of economizing behavior. After defining the economic approach to politics, this chapter discusses three examples: public choice theory, economic analysis of policy, and economic analysis of institutions.