Part VI: What are the consequences of path dependence?

 This essay is one of a series exploring the topic: What impact does political entrepreneurship have on freedom and flourishing? The series commenced with a Preface which provides a synopsis of the series and explains why I think it is important to obtain a better understanding of political entrepreneurship.

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In 1848, Frédéric Bastiat famously wrote:

“The state is the great fiction by which everyone tries to live at the expense of everyone else” (Bastiat 2012, p. 171).

 A couple of years later he noted that now participation in the making of law has become universal, “equilibrium is being sought in universal plunder” (Bastiat 2012, p.189).

He predicted social unrest: “people will be beating on the door of the legislative palace. The conflict will be no less bitter within it" (Bastiat 2012, p.194).

How can we explain why “universal plunder” has taken so long to become a major problem in the long-standing democracies? Part of the explanation lies in the existence of formal institutions that place constraints on legislatures. As noted in an earlier essay in this series, part of the explanation also lies in two-party systems of government in which power is usually exercised by encompassing interest groups which have an interest in promoting widespread opportunities for individuals to flourish.

However, the existence of formal rules and encompassing political parties doesn’t offer a complete explanation. What is it that has hitherto prevented governing parties from being displaced or taken over by political entrepreneurs seeking to modify the rules of the game to advantage favored interest groups?

I think the answer lies in the “path dependence” of social norms. Please recall at this point that (as noted in Part I) institutions include codes of conduct, norms of behavior, conventions, and customs as well as formal rules. As Douglass North explains:

“Path dependence means that history matters. We cannot understand today’s choices … without tracing the incremental evolution of institutions” (North 1990, p.100).

There was a time when social norms caused people in the long-established democracies to exercise greater restraint in using their democratic “rights” to obtain benefits for themselves at the expense of others. One reason was that inequality under a constitutional order in which the rules of the game were seen as fair didn’t generate tension but was seen as ipso facto also fair. Vincent Geloso and Alex Tabarrok note that James M. Buchanan held that view (Geloso and Tabarrok, 2025).

Buchanan also identified two norms which underpin liberal democracy: that a sufficient proportion of the population can make their own choices and prefer to be autonomous rather than dependent on others; and that a sufficient proportion of the population enter relationships with others based on reciprocity, fair dealing, and mutual respect. (Buchanan 2005, p. 26).

Buchanan asserted:

“Generalized or widespread failure of persons to adhere to these norms, along with widespread recognition that others also disregard the standards, will insure that the liberal order itself must fail, quite independently from any institutional safeguards” (Buchanan 2005, p.28).

The autonomy norm has eroded as more people have become heavily dependent on government for retirement incomes and for services such as health and education. Business and community organisations have also become increasingly willing to forgo their autonomy to pursue social and environmental objectives favored by whatever government happens to be in power and to obtain a more favourable regulatory environment for their activities.

The norm of reciprocity has also eroded considerably in recent decades. Political parties increasingly base their appeal to voters on the supposed benefits a policy might deliver to groups with specific demographic characteristics, rather than pursuing broad community interests. When voters see others declaring their support for political parties which promise additional spending or regulation to benefit specific groups, they are likely to be less inhibited in behaving similarly. As more voters engage in the struggle to obtain benefits, political parties have a greater incentive to compete for the support of narrow interest groups, rather than seeking to appeal to the broader interests of voters in their roles as taxpayers and consumers.

Increasing entanglement of government, industry and community organisations has been associated with inter-related problems of increasing constraints on economic freedom, changes in business culture leading to a decline in dynamism, and rapid growth in public debt levels. Economic freedom levels in countries such as France, Britain and USA are now substantially lower than they were at the turn of the century. Much of this slippage occurred prior to restrictions on freedom imposed during the coronavirus epidemic (Fraser Institute data). Edmund Phelps has noted a decline in economic dynamism associated with corporatism (Phelps 2013, pp. 159-69). Growth of public debt is a predictable consequence of the triadic political relationships discussed earlier. To avoid disappointing current generations by constraining government spending or raising taxes, governments tend to increase public debt, thus transferring the burden to future generations.

My consideration of these matters has led me to expect fiscal crises to become more common in the liberal democracies in the years ahead and that this will lead to consideration of rule changes to raise productivity growth and require governments to live within their means (Bates 2021, pp.117-18).

However, changing the rules of the game to reduce the adverse impact of interest group politics poses a large challenge for reform-minded political entrepreneurs. The problem arises from path dependency. The culture of preferment-seeking and plunder associated with interest group politics took a long time to reach its current state, but it is now entrenched and will be difficult to overcome.

North recognized the role that political entrepreneurs play in institutional change (North 1990, pp. 86-87, 103-4). His analysis implies that their role is to reduce transactions costs associated with institutional change. (North 1990, p.138). The transactions costs of institutional change are high because of the path dependence of institutions. As institutions evolve, ideologies tend to evolve to support them. Organizations and interest groups that have grown up under existing institutions often have a stake in maintaining them (North 1990, pp.91,99). 

In his Nobel lecture, North emphasized that because of path dependence, a change in formal rules may not change economic performance in the manner expected:

“It is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually. Since it is the norms that provide “legitimacy” to a set of rules, revolutionary change is never as revolutionary as its supporters desire and performance will be different than anticipated. And economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement.” (North 1993).

The implications of path dependence have been further explored by Peter Boettke, Christopher Coyne, and Peter Leeson. These authors contend that the ability of a new institutional arrangement to take hold when it has been transplanted depends on that institution’s status in relations to indigenous agents in the previous time period. They suggest that institutional transplants are unlikely to stick if they are inconsistent with indigenously introduced endogenous institutions (Boettke et al. 2015).

The analytical framework used by Boettke et al. suggests that endogenous political entrepreneurs might be more successful than international agencies in bringing about institutional change. Boettke and Coyne have noted elsewhere that political entrepreneurship entails alertness to the potential for new forms of governance to overcome political and bureaucratic constraints (Boettke and Coyne 2007, pp.130-31).

That raises the question, considered in the following essay, of what other qualities reform-minded political entrepreneurs might require to bring about desirable institutional change.

References

Bastiat, Frédéric, “The Law,” “The State,” and Other Political Writings 1843-1850, ed. Jacques de Guenin (Liberty Fund, 2012).

Bates, Winton, Freedom, Progress, and Human Flourishing (Hamilton Books, 2021).

Boettke, Peter J., Christopher Coyne and Peter Leeson, “Institutional Stickiness and the New Development Economics”, Chapter 6 in Culture of Economic Action, ed. Laura E. Grube and Virgil Henry Storr (Edward Elgar, 2015).  

Boettke, Peter J. and Christopher J. Coyne, “Entrepreneurial Behavior and Institutions” in Entrepreneurship: The Engine of Growth, ed. Maria Minniti (Praeger, 2007).

Buchanan, James M. Why I, Too, Am Not a Conservative, The normative vision of classical liberalism (Edward Elgar, 2005).

Geloso, Vincent and Alex Tabarrok. “Two Peas in a Pod: Democracy and Capitalism”, in Scott C. Miller and Sidney M. Milkis (eds.) Can Democracy and Capitalism be Reconciled (Oxford University Press, 2025).

North, Douglass C., Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990).

North, Douglass C., ‘Economic Performance through Time,’ Nobel Prize Lecture (December 9, 1993) https://www.nobelprize.org/prizes/economic-sciences/1993/north/lecture/

Phelps, Edmund. Mass Flourishing: How grassroots innovation created jobs, challenge and change (Princeton University Press, 2013).

What do Neo-Aristotelian Perspectives tell us about Flourishing Individualism?

 

This is a guest essay by Dr Theodore N. (Ted) Pauls.

Ted Pauls holds a Doctorate in Higher Education Administration and serves as a Professor of Business at Bethany College (Bethany, West Virginia). He has 32 years of college teaching experience including Bethany, Wheeling Jesuit University, and West Liberty University. He also currently serves as the President of the Brooke County Board of Education. Prior to entering academe, Ted served as a Marketing Director for a privately held corporation and as a stockbroker.

In my view, the topic of Ted’s essay is highly relevant to people who live in the liberal democracies. I often hear people claim that the priority given to personal freedom in those societies has caused them to become excessively individualistic. How can defenders of individual liberty respond to those who claim that excessive individualism has contributed to narcissistic behaviour, social isolation, and mental illness? We can’t deny that many individuals lack integrity in their dealings with others. We can’t deny that many individuals live lonely lives, lacking positive relationships with others. We can’t deny that many individuals seek to escape from reality and that some of them end up delusional.

However, we can explain that it is wrong to jump to the conclusion that the solution to those problems lies in further restricting opportunities for individual self-direction. We can explain that humans cannot fully flourish unless they have opportunities to exercise the practical wisdom and integrity required to direct their own lives in accordance with goals they choose and values they endorse. And we can also explain that the kind of individualism that we endorse is the flourishing individualism that Ted Pauls writes about in the following essay.

Ted writes:

 Flourishing individualism is a philosophical vision that places the rational, morally responsible individual at the center of ethics, politics, and human life. It is an ideal that affirms the dignity of the person, the objectivity of value, and the necessity of freedom—not merely as a constraint on power, but as the essential condition for human excellence. This article develops a theory of flourishing individualism by integrating key insights from three related and foundational works:

• Leonard Peikoff’s Objectivism: The Philosophy of Ayn Rand (1991),
• Edward W. Younkins’s Flourishing and Happiness in a Free Society: Toward a Synthesis of Aristotelianism, Austrian Economics, and Ayn Rand’s Objectivism (2011), and
• Douglas J. Den Uyl and Douglas B. Rasmussen’s The Perfectionist Turn: From Metanorms to Metaethics (2016).

Each of these works contributes to a shared theme: the defense of individual flourishing as the core moral aim and the view that political society exists to enable, not direct, that flourishing. Peikoff articulates Ayn Rand’s Objectivist ethics and politics as a fully integrated philosophical system grounded in reason, egoism, and laissez-faire capitalism. Younkins seeks to synthesize Aristotelian virtue ethics, Austrian economics, and Objectivist principles to argue that human happiness and social cooperation are best achieved in a free society. Den Uyl and Rasmussen develop a metanormative liberalism in which the moral diversity of flourishing individuals is protected by political principles that are themselves ethically grounded but non-perfectionist in character.

The result of their combined perspectives is a powerful moral and political framework that answers the challenge of modern pluralism without surrendering the objectivity of value. It is a theory that preserves the ethical centrality of virtue and the reality of human goods while insisting on the primacy of liberty and individual responsibility. This article unfolds this framework in five parts: (1) the moral foundations of individual flourishing, (2) the structure of virtue and self-perfection, (3) the social context of flourishing, (4) the political principles that protect freedom, and (5) the philosophical implications of flourishing individualism for contemporary thought.

The Moral Foundations of Flourishing

At the heart of flourishing individualism is the idea that human life has an objective standard of value and that each individual must discover and pursue their own good through rational action. This view stands in opposition to both subjectivist relativism and collectivist moralities that subordinate the individual to external purposes.

Peikoff Explains Rand on Reason and on Life as the Standard of Value

Leonard Peikoff, in Objectivism: The Philosophy of Ayn Rand presents a moral framework that begins with the facts of human nature. This book is the first comprehensive statement of Rand’s philosophy. Peikoff discusses Rand’s views on metaphysics, epistemology, ethics, politics, and aesthetics. Rand’s philosophy asserts that existence exists independently of consciousness, that reason is the primary means of understanding the world and one’s place in it, and that individuals should act in pursuit of their own self-interest. Ayn Rand’s ethics, as he explains, holds that value is that which one acts to gain or keep, and that the fundamental alternative at the base of value is life versus death. Since human beings do not survive automatically, but by the use of reason, the standard of value is not mere survival, but rational flourishing—living as the kind of being one is.

This leads to a morality of rational egoism. The purpose of morality is not to sacrifice the self for others, nor others for the self, but to guide each individual in achieving their own happiness through the use of reason. Moral principles are principles of self-perfection, of the kind of character and action required to live a fully human life.

Objectivist ethics is thus neither altruistic nor hedonistic. It affirms the individual as an end in himself and views the pursuit of one’s own rational interests as both morally right and practically necessary. It calls for independence, integrity, productivity, and pride—virtues that are both personally fulfilling and socially beneficial.

Rand’s Objectivism holds that an individual’s choice to live is required for ethical obligations to exist. On the other hand, Younkins, Den Uyl, and Rasmussen all maintain that there is an ethical obligation to choose life because life is one’s natural end and good and therefore choiceworthy.

Younkins on Flourishing and Human Nature

Edward W. Younkins, in Flourishing and Happiness in a Free Society, expands on this foundation by situating it within the broader tradition of Aristotelian eudaimonism. He argues that human beings have a nature with specific potentials and that morality consists in actualizing these potentials over the course of a lifetime. Flourishing (or eudaimonia) is an activity of the soul in accordance with reason and virtue.

Younkins draws on Aristotle, Rand, contemporary neo-Aristotelian philosophers, Austrian economists, and others to argue that flourishing is not reducible to pleasure, wealth, or external success. It is a state of integrated self-realization involving rationality, moral character, purposeful work, and meaningful relationships. It requires that individuals make choices consistent with their nature and long-term well-being.

Crucially, flourishing cannot be given or imposed—it must be chosen and achieved. This emphasis on agency echoes Objectivism’s moral individualism while adding a richer account of the variety and depth of human goods. The good life is not a fixed pattern but a dynamic process of self-perfection.

He also explains that Objectivist claims of value objectivity and claims of Austrian economists are compatible because that involve different levels of analysis. Rand’s sense of value-objectivity complements the Austrian sense of value-subjectivity because personal flourishing on an objective level transcends subjective value preferences.

Younkins’s book presents the essentials of a potential paradigm or conceptual framework for individual human flourishing in a free society. It is an attempt to forge an understanding from various disciplines and to integrate them into consistent, coherent, and systematic whole. His goal is to have a paradigm in which the views of reality, human nature, knowledge, values, action, and society make up an integrated whole. He recognizes that his potential framework will grow and evolve as scholars engage and extend its ideas.

Den Uyl and Rasmussen on Individualistic Perfectionism

Douglas J. Den Uyl and Douglas B. Rasmussen, in ThePerfectionist Turn, argue that ethical theory must return to a teleological and perfectionist framework that recognizes the centrality of human flourishing. Against dominant trends in analytic philosophy that treat ethics as a matter of rules, duties, or utility, they insist that the good life is the ultimate standard of evaluation.

Their contribution lies in developing a concept of “individualistic perfectionism”: the view that the good is self-perfection, but that this perfection takes diverse forms based on individual contexts, capacities, and choices. Flourishing is not a single ideal life but a framework in which many legitimate variations of the good life are possible.

Den Uyl and Rasmussen define human flourishing as objective, inclusive, individualized, agent-relative, self-directed, and social. A person’s flourishing is desired because it is desirable and choice-worthy.

This view preserves the objectivity of morality while respecting the uniqueness of persons. It sees ethics as aspirational, not prohibitive—as a guide to excellence rather than a list of constraints. And it affirms the value of individual agency, creativity, and responsibility in moral development.

 Den Uyl and Rasmussen defend a template of responsibility, rather than a template of respect, as a framework within which to based one’s self-perfection. This agent-centered template recognizes the existential condition that each responsible and choosing individual must make a life for himself. Under this template self-direction and integrity are central to morality because personal responsibility for one’s life is primary.

Den Uyl and Rasmussen explain that political philosophy is unavoidably tethered to deeper, more foundational. and comprehensive perspectives and frameworks regarding reality, human nature, and ethics, Championing the tethered character of political philosophy, Den Uyl  and Rasmussen advocate individualistic perfectionism and the template of responsibility for a person’s self-perfection.

The Virtues of Flourishing: Self-Perfection in Practice

Flourishing individualism depends not only on abstract principles but on the cultivation of character. Virtue is the bridge between human nature and human flourishing: it is the habitual excellence of the soul in action.

All of these thinkers agree that virtues are not mere social conventions or rules of obedience but rational habits that support an individual’s life and happiness. While they differ in terminology and emphasis, they converge on a core set of traits that enable a flourishing life.

Objectivist Virtue Theory

Peikoff identifies seven cardinal virtues in Ayn Rand’s ethics: rationality, independence, integrity, honesty, justice, productiveness, and pride. Each of these is a rational requirement of life, rooted in the objective needs of human survival and flourishing.

• Rationality is the primary virtue: it is the commitment to reason as one’s only source of knowledge and guide to action.
• Independence follows from rationality: it is the reliance on one’s own judgment rather than on the beliefs or authority of others.
• Integrity is fidelity to one’s rational principles.
• Honesty is the refusal to fake reality.
• Justice is the principle of judging others objectively and giving them what they deserve.
• Productiveness is the creation of material values.
• Pride is moral ambitiousness—a commitment to achieving one’s moral worth.

These virtues are not sacrifices but achievements. They are the means by which an individual shapes a life worth living.

Younkins on Integrated Living

Younkins expands this list by emphasizing the integration of mind, body, and character. He argues that flourishing involves not just isolated traits but the harmonious development of the whole person. This includes intellectual virtues like wisdom and understanding, moral virtues like courage and benevolence, and practical virtues like industry and perseverance.

He also stresses the importance of purposeful work and the creation of value. Echoing Rand and the Austrians, Younkins sees economic activity not as a separate sphere but as an expression of human creativity and agency. Work is not a mere means to leisure; it is part of the good life.

Den Uyl and Rasmussen on the Diversity of Excellence

Den Uyl and Rasmussen agree that virtue is central but emphasize that virtue must be contextualized. Because flourishing is individualized, the specific content of virtue can vary with personal identity, role, and situation. What prudence or courage demands may differ between a soldier, a scholar, and an entrepreneur.

They resist reducing virtue to rule-following or to a fixed ideal life. Instead, they see it as a dynamic and developmental concept: excellence in the use of practical reason to navigate the world in pursuit of self-perfection. This view aligns with Aristotle’s emphasis on phronesis (practical wisdom) as the master virtue guiding others.

Den Uyl and Rasmussen add practical wisdom (prudence) to the Objectivist list of virtues. They explain that reason is a self-directing activity and that practical wisdom is the excellent use of practical reason and the central integrating virtue of a flourishing life.

The Social Context of Flourishing

Flourishing is personal, but it is not solitary. Human beings are social by nature, and many goods—friendship, love, trade, knowledge—require the presence of others. The moral vision of flourishing individualism recognizes this fact without collapsing the individual into the collective.

The Role of Trade and Civil Society

Peikoff emphasizes that trade—both economic and spiritual—is the proper mode of human interaction. In a society of rational individuals, people deal with one another by mutual consent for mutual benefit. Force, fraud, and parasitism are morally and practically incompatible with a flourishing life.

Younkins adds that civil society—the network of voluntary institutions, markets, and communities—is the natural habitat for human flourishing. Drawing on Austrian economics, he shows how spontaneous order arises from the free choices of individuals pursuing their own goals. Markets are not chaotic or amoral but forms of cooperation that reflect human values.

Younkins explains that an entrepreneur attains wealth and his other objectives by providing people with goods and services that further flourishing on earth. He views entrepreneurs as specialists in prudence—the virtue of applying one’s talents to the goal of living well. In turn, Den Uyl and Rasmussen see a parallel between entrepreneurship and moral conduct. They discuss the creativity of human beings both in producing wealth and in building moral character, two enterprises that require alertness, insight, and evaluation and are parts of a flourishing life. They explain that both ethical wealth and economic wealth are a function of one’s actions taken to produce a good life.

Virtue and Community

While the state must not impose virtue, communities and relationships play an essential role in cultivating it. Younkins, Den Uyl, and Rasmussen all stress the importance of cultural norms, moral education, and social practices that support character development. Families, friendships, institutions of learning, and the arts all contribute to the conditions of flourishing.

But these institutions must be voluntary and diverse. The ethical pluralism of flourishing individualism requires a social order that permits experimentation, innovation, and personal growth.

Political Philosophy and the Framework for Flourishing

Ethics identifies the good life for the individual; political philosophy identifies the kind of social order that makes the pursuit of that life possible.

Peikoff, Rand, and Objectivism: Rights as Moral Principles

Peikoff and Rand emphasize that because human beings survive by reason, and because reason is a volitional faculty, freedom is the political condition required for moral agency. Rights are objective principles that protect the individual’s freedom to act.

The proper political system, therefore, is laissez-faire capitalism: a system that protects rights and bans the initiation of force. It is not morally neutral but grounded in the recognition that each individual has a moral right to live for their own sake.

Younkins: Natural Law, Natural Rights, and Civil Society

Younkins explains that the natural negative right to liberty is concerned with regulating conditions for human flourishing They are not directly concerned with promoting the attainment of flourishing. He agrees with Den Uyl and Rasmussen’s long held view that rights are metanormative principles that protect self-directedness, a universal requirement to all manifestations of human flourishing.

He also demonstrates that political freedom enables the emergence of complex, adaptive systems—markets, associations, cultural norms—that support flourishing. He draws on Austrian insights to argue that no central planner can substitute for the decentralized knowledge and creativity of individuals.

This view also entails limits on political authority. The state must be constrained by rule of law and dedicated to protecting liberty—not managing outcomes or mandating virtues.

Den Uyl and Rasmussen: The Metanormative Structure of Liberalism

Unlike Rand, Den Uyl and Rasmussen (as well as Younkins) distinguish between normative and metanormative principles. Ethics is normative: it guides individuals in living well. Politics is metanormative: it defines the conditions under which individuals can peacefully pursue diverse goods.

This leads to a perfectionist yet non-perfectionist liberalism: one that values flourishing and virtues but refrains from legislating them. The liberal order is justified not by neutrality but by its compatibility with ethical pluralism and moral agency.

Philosophical Implications and the Future of Flourishing Individualism

Flourishing individualism reconciles objectivity with freedom, pluralism with virtue, and individuality with community.

It offers:

• Objectivity without authoritarianism: Morality is real, but political authority is limited.
• Pluralism without relativism: There are many good lives, but not all lives are equally good.
• Agency in a world of systems: Individuals are not products of structures but shapers of their own destiny.
• A humanistic ideal: The individual is not a cog in the machine but a creator of values.

In a time of cultural fragmentation and political overreach, this philosophy offers a bold and humane alternative. It calls on us to build a society that respects liberty, cultivates virtue, and honors the rationality and free will of each person.

Together, these books by Peikoff, Younkins, and Den Uyl and Rasmussen provide essential  ideas for a robust framework for understanding flourishing individualism—a life of rational self-interest, virtue, and freedom.

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References

Den Uyl, Douglas J., and Douglas B. Rasmussen. The Perfectionist Turn: From Metanorms to Metaethics. Edinburgh: Edinburgh University Press, 2016.

Peikoff, Leonard. Objectivism: The Philosophy of Ayn Rand. New York: Dutton, 1991.

Younkins, Edward W. Flourishing and Happiness in a Free Society: Toward a Synthesis of Aristotelianism, Austrian Economics, and Ayn Rand’s Objectivism. Lanham, MD: University Press of America, 2011.

How does Entangled Political Economy help us to understand political entrepreneurship?

 

After I finished reading Richard E. Wagner’s book, Politics as a Peculiar Business, the thought crossed my mind that I should encourage people to read what I was about to write about it before reading the other essays I have recently written about political entrepreneurship. The titles of the other essays are:

Can the concept of political entrepreneurship help us to understand authoritarianism?

What role does political entrepreneurship play in institutional change?

Should we expect our political leaders to be great and good?

I have been writing essays about political entrepreneurship to improve my understanding of the topic. In the process I have felt like that a blind man trying to build up a picture of an elephant in his mind by approaching it from different angles. After I finish writing this essay, I might be able to turn my mind to considering how best to present my understanding of the concept and its relevance to liberty and human flourishing.

Entangled Political Economy

The full title of Richard E. Wagner’s book is Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy (Edward Elgar, 2016).  

Wagner refers to the ancient Indian parable of the blind men and the elephant in suggesting that political economy is best approached from the standpoint of plausible reasoning rather than demonstrative reasoning.

Plausible reasoning starts from the standpoint that the object of inquiry cannot be known in full detail to the inquirer.

By contrast, demonstrative reasoning begins with a set of assumptions about human behavior, and then analyses the implications of those assumptions. The conventional welfare economics approach to the role of government - with its assumption that government acts like an omniscient and benevolent dictator attempting to maximize the well-being of citizens by correcting externalities and providing public goods – provides a relevant example of demonstrative reasoning.

The analytical framework of Entangled Political Economy recognises that both “polity and economy are areas of practical action that operate in similar but not identical fashion.”

The author suggests that human nature has “a bi-polarity about it that generates both polity and economy.” The political side of human nature entails recognition that we are social creatures who live in close proximity and engage in cooperation and conflict. The economic side entails recognition that we need “to make a livelihood” and desire “to be self-directed as against being conscripts in someone’s army”.

I am not persuaded that “bi-polarity” is the best way to capture the idea that humans are “political animals” whose interactions with other members of the species are not always motivated by personal benefit. It seems to me that human nature inclines individuals to seek to flourish by making wise and well-informed choices about all aspects of their lives that they are able to influence, including their interactions with others. 

However, as public choice theorists have noted, most people lack sufficient motivation to allocate the time and effort required to make well-informed choices in relation to national politics because their individual choices are unlikely to have much impact on national outcomes. Wagner’s view of entangled political economy draws on that public choice literature.

I certainly agree that political economy should focus on the full range of interactions among persons and entities within society. As Wagner notes, that perspective has important implications for social change:

“The framework of entangled political economy accommodates recognition that societies change only through individual action inside those societies, and with those actions spreading within the society according to the receptivity of other members of that society to those changes.”

Although Entangled Political Economy is based on a description of different kinds of interactions among individuals in the real world, it represents a departure from the way many economists have previously thought about the interaction between politics and economics. Wagner reminds readers that it has been customary to “envision a polity as a kind of lord of the manor who overseas what is denoted as economy.” He points out that discussion is usually in terms of “additive political economy” in which polity and economy are denoted as independent entities and polity intervenes in economy to correct “market failure”. He argues:

“The Progressivist vision of political presence and dominance throughout society is abetted by the vision of additive political economy because that vision provides rationalization for unlimited political action.”

Political entrepreneurship

 Wagner argues that it makes sense to view politics as a peculiar form of business because it has many characteristics in common with business. Both are sources of livelihood for people, entail competition, and are supported by administrative educational organisations. Both must attract investors to provide capital. Both involve entrepreneurship.

The main difference between political entrepreneurship and market entrepreneurship arises because of the difference between dyadic and triadic relationships. Dyadic relationships involve two people; triadic relationships involve three. Wagner observes that market relationships can be reduced mostly to a set of dyadic relationships where both parties benefit. Political relationships typically require a set of triadic relationships where two people exchange mutual support and a third is forced to provide financial support.

Wagner explains:

“Within the triadic relationships associated with electoral competition … a political entrepreneur can construct a supporting coalition by crafting a transactional structure that entails gainers and losers, while at the same time generating a supporting ideological cover that softens and conceals the redistributive character of the transaction.”

The difference between market and political competition has implications for the qualities required for successful entrepreneurship in different contexts. Wagner suggests that while puffery is an understandable part of market competition, “electoral competition is mostly about puffery”. Systemic lying is a feature of political competition. Sentiment tends to play a larger role, relative to reason, in political competition because of the absence of a direct connection between the individual elector’s choice and the outcome obtained. Voting is like ordering a meal at a restaurant and being served the same meal as everyone else, irrespective of what you ordered. Wagner notes Vilfredo Pareto’s view that ideological articulation can induce people to support measures that they might have opposed in a market setting. Voters generally embrace policies that enable them to feel good about themselves.

Wagner argues that little substantive work is accomplished through elections and political campaigns. The substantive work of policy choice takes place “outside electoral politics and entails the interactive elements necessary for constructing and maintaining deals.” He suggests a parliamentary assembly can be viewed as an “investment bank” because it is “a hub for making deals” involving selection and funding of projects. In that context:

“Entrepreneurs are thus competing among themselves to seize the future. Successful entrepreneurship offers both fame and fortune.”

In reading Wagner’s account of political entrepreneurship, it occurred to me that the significance of electoral competition in the United States is greater than he portrays it to be. That perception is based partly on my (somewhat cursory) observation of the presidential election in 2024 and the performance of the Trump administration in its first 100 days in office.

The 2024 U.S. election and its aftermath may be atypical, but similar political entrepreneurship has been on display in some European elections.  As discussed in a previous essay, political entrepreneurs tend to focus on niches in the marketplace of ideas. They seek to attract support from people who are discontented with current economic and social outcomes by emphasizing alleged problem-solving capacities of their ideas. Their success in attracting a loyal support base of customers who are willing to help them to sell their narrative depends to a large extent on the strength of competition from politicians selling different narratives, and on the extent of resistance by journalists and members of the public who consider their narratives to be incorrect, or that their policy proposals are unworkable, unconstitutional, unethical, or otherwise unhelpful.

I also observed that the discussion of entangled political economy in Politics as a Peculiar Business seemed more relevant to countries with parliamentary systems of government than to those with presidential systems, where much business seems to be done via “executive orders”. However, that is not intended as criticism. It may reflect the greater role of “executive orders” in the U.S. in the years since the book was published.

How can entanglement be contained?

One of Wagner’s aims in writing the book was “to explain how an entangled political economy can generate its own momentum to transform a constitution of liberty into a constitution of control”. He refers to the credit market as providing an example of how this occurs. Private ordering of credit markets is vulnerable to entanglement for two reasons. On the demand side are market participants who are dissatisfied with how they fare in privately ordered credit markets. On the supply side are “political figures who want to catapult themselves from background to foreground in the cosmic drama that is human society”.

Another example relates to the Fifth Amendment of the U.S. Constitution which provides for just compensation when the government takes private property for public use. However, Wagner observes that “history over the past century or so has increasingly run in the direction of governments taking property for what are private uses and paying only partial or token compensation”. A clear constitutional provision is not necessarily “sufficiently strong to deter rapacious interest groups from using government as an instrument of predation”.

Wagner refers to Vincent Ostrom’s observation that government involves a Faustian bargain: “instruments of evil – power over other people – are to be employed because of the good they might do, recognizing that evil might also result.” 

How can we minimize the potential for evil to result? Wagner suggests that the alternatives are “parchment” and “guns”.

“Parchment” refers to constitutional rules. Constitutional rules may remain effective if supported by public morality – sufficient numbers of people being willing to refrain from use of the powers of the state to enrich themselves at the expense of others. This approach relies on education and related processes to cultivate virtue and wisdom.

“Guns” refers to an approach that looks primarily to “a kind of opposition of interests to limit government predation”. Wagner suggests that “guns” may complement “parchment”. He writes:

“The basic principle behind this approach is for governmental action to require some concurrence among different participants with opposed interests.”

Wagner suggests that when it becomes habitual for people to use politics in a predatory manner that may “promote alternative beliefs as to what comprises just conduct”. He concludes that “parchment and guns … would seem to be nonseparable ingredients of constitutional order in the final analysis.”

Wagner tells us that his reference to guns is metaphorical, so what he has in mind may not necessarily be violent. For example, those who believe themselves to be victims of predation have an incentive to form associations to protect their interests in the courts and may be able to exert countervailing power the political arena.

While I believe that entangled political economy offers important insights about interactions between participants in politics and markets, I would have liked the author to explore more fully the macroeconomic consequences of increasing entanglement. Perhaps that would have led to a more optimistic conclusion.

In Freedom, Progress, and Human Flourishing I suggested that although most liberal democracies are heading for major economic crises in the years ahead there are reasons to be optimistic “that governments will eventually introduce institutional reforms to enable the drivers of progress to restore growth of opportunities.” (See Chapter 6, particularly p. 120)

My optimism presupposes the emergence of political entrepreneurs who understand the nature of the problems that need to be addressed and can marshal the political support required to carry out appropriate institutional reforms to correct those problems.

Conclusions

The discussion of entangled political economy in Richard Wagner’s book, Politics as a Peculiar Business, is helpful to an understanding of the context in which political entrepreneurship occurs in the liberal democracies.

Entangled political economy focuses on the full range of interactions among persons and entities within society. It emphasizes that societal change occurs only through individual actions. Entangled political economy represents a departure from the view of those economists (and governments) who have envisioned a polity as a kind of lord of the manor who overseas an economy.  

Wagner argues that politics has many characteristics in common with private business, but it is characterized by triadic relationships rather than dyadic relationships. Market relationships can be reduced mainly to sets of relationships between two people, both of whom benefit. Politics typically requires sets of relationships where two people exchange mutual support and a third is forced to provide financial support.

The author suggests that the main work of political entrepreneurs – interactions to construct deals - takes place outside electoral politics. He suggests that parliaments can be viewed as kinds of investment banks because they are hubs for making deals involving selection and funding of projects.

In my view the significance of electoral politics and deal-making by executive arms of governments is greater than Wagner portrays it to be. However, my view has been strongly influenced by events since 2016, when his book was published.

Wagner argues that entangled political economy generates its own momentum to transform a constitution of liberty into a constitution of control. He is pessimistic about the prospect for entanglement to be contained via constitutional rules and moral conduct. He suggests that habitual use of politics in a predatory manner promotes an alternative view of what constitutes just conduct.

In my view, Wagner might have come to a more optimistic conclusion if he had more fully explored the macro-economic consequences of increasing use of the powers of the state for predatory purposes. Economic crises may eventually bring about appropriate institutional reforms if political entrepreneurs emerge who can marshal the political support required to implement them.  

Addendum

Readers may also be interested in a later series of essays on political entrepreneurship.

What is the problem with aggressive realism in international relations?

 

Before I outline John Mearsheimer’s theory of aggressive realism, I will present my version of the classical liberal view of international relations.

A classical liberal view

As the epigraph might suggest, I subscribe to a view of international relations that has been around, in one form or another, at least since the time of the Ancient Greeks. The poet Hesiod, one of the founders of Greek epic poetry, advised his brother, Perses, to avoid thinking of obtaining wealth by engaging in predatory violence, including war. He urged Perses to respect the rights of other people, and to seek prosperity by working and engaging in peaceful competition with economic rivals.

As I see it, it is natural for individuals to seek to flourish by engaging in peaceful pursuits in mutually beneficial collaboration with others. However, it is an unfortunate fact of life that some people - individuals, groups, and nations - seek to obtain wealth by predation. People can flourish by engaging in peaceful pursuits only if they are able to protect themselves from predation.

It is not difficult to identify predatory nations which have a recent track record of seeking to invade the territory of other jurisdictions or threatening acts of violence against them. 

People in neighboring jurisdictions have an obvious incentive to protect themselves, and each other, from such predatory behavior. Nations that do not have predatory intent toward other jurisdictions have an incentive to band together to form communities of peaceful nations. The purpose of these multinational communities is to establish and enforce international rules that outlaw invasion and other violent activities that predatory nations undertake.

The multilateral communities of peaceful nations (MCPN) that I have in mind would have more in common with some existing security treaties than with the United Nations. I envisage that the MCPN would exist solely for mutual protection and would avoid attempting to pursue other objectives such as protecting individual rights, promoting economic development, or pursuing environmental objectives.  Multilateral cooperation might be desirable to pursue some of those other objectives, but the MCPN are more likely to be effective in pursuing the objective of discouraging predation if they focus specifically on that objective.

The approach proposed above should enable liberal democracies to avoid becoming involved in pathetic attempts to impose the institutions of liberal democracy on people with different belief systems, values, and ideals. However, it would support provision of military aid to Ukraine - to support its defense against Russian aggression, to Israel - to support its defense against terrorism sponsored by Iran, and to Taiwan - to counter Chinese threats of invasion.

I have previously outlined some similar ideas in myreview of Christopher Coyne’s book, In Search of Monsters to Destroy.

The approach proposed here has much in common with the classical liberal approach to international relations theory described by Edwin van de Haar in a monograph entitled, Human Nature and World Affairs, published by the London-based Institute of Economic Affairs in 2023.

The theory of aggressive realism

When a friend suggested a few weeks ago that I should watch Lex Fridman’s interview of John Mearsheimer, my initial reaction was that I had already knew enough about Mearsheimer’s views because someone had referred them to me in 2022, soon after Russia’s invasion of Ukraine. I suggested that my friend should take a look at Niall Ferguson’s refutation of Mearsheimer. Surprisingly, he took up my suggestion, so I felt obliged to watch the Mearsheimer interview.

After watching the interview, my initial reaction was that I had heard enough from John Mearsheimer to last me for at least the rest of 2025. However, I had to acknowledge (to myself) that Mearsheimer’s approach to the issues was scholarly, So I decided that it might be worth trying to find out more about the basis for his views. That is how I came to read, The Tragedy of Great Power Politics (2014 edition).

Mearsheimer argues that the overriding goal of each state is to maximize its share of world power. Since no state is likely to achieve global hegemony, the world is condemned to “perpetual great power competition”.

His theory of aggressive realism is based on 5 bedrock assumptions:

1. The international system is anarchic, in the sense that the system comprises independent states that have no central authority above them. 
2. Great powers inherently possess some offensive military capability. 
3. No state can ever be certain about another state’s intentions, regarding the use of offensive military capability.
4. Survival is the primary goal of great powers – they are unlikely to be able to pursue other goals if they are conquered.
5. Great powers are rational actors – they think strategically about how to survive in their external environment.

Mearsheimer argues that these assumptions are realistic and that, together, they “create powerful incentives for great powers to think and act offensively with regard to each other”.  He suggests that hegemony is the best way for any state to guarantee its own survival.

The author views aggressive realism as a prescriptive theory as well as a descriptive theory. If great powers want to survive, they should behave like aggressive realists.

The extent to which states fear each other determines the severity of their security competition as well as the probability that they will fight a war. An “unbalanced multipolarity” is the power configuration that generates the most fear because it contains a potential hegemon which stands a good chance of dominating the other great powers in its region and the world.

Much of Mearsheimer’s book is devoted to marshalling historical evidence in support of his theory, but the final chapter focuses on a specific application of his theory. In that chapter, he seeks to answer the question: Can China rise peacefully?

Mearsheimer does not believe China can rise peacefully. He argues that if China maintains rapid economic growth over the next few decades, it is likely to end up in an intense security competition with the United States and its neighbors. He views China as a potential hegemon and the current international power configuration as an unbalanced multipolarity.

According to Mearsheimer, the optimal policy for the United States to adopt toward China is “containment”, rather than other alternatives including preventive war, pursuing policies aimed at slowing China’s economic growth, or seeking to weaken China by fomenting trouble within its borders. Containment means “keeping Beijing from using its military forces to conquer territory and more generally expand its influence in Asia”. Mearsheimer suggests that the U.S. should form a balancing coalition with as many of China’s neighbors as possible.

Where is the problem?

As I see it, there are two main weaknesses in Mearsheimer’s analysis. The most fundamental problem stems from assumption 3. In order to argue that aggressive realism is the optimal strategy for a state to adopt, I think it would be necessary to argue that there is always a great deal of uncertainty about the intentions of neighboring states, rather than just lack of certainty. Perhaps it is true that no state can ever be certain about another state’s intentions, but I think states can usually make well-informed judgements about the intentions of their neighbors. Australia and New Zealand, for example, can be sufficiently certain about their intentions toward each other, to refrain from adopting offensive postures in that relationship. I think the same has generally been true of relations between Canada and the United States over the last century, but the recent rhetoric of the U.S. president might suggest that Canada would be wise to begin to re-assess the probability that the U.S. will continue to respect its territorial integrity.

Those examples illustrate the point I want to make. It is possible to make probabilistic assessments about the intentions of other states from past behavior and the rhetoric of their leaders. Some states obviously have peaceful intentions towards their neighbors whereas other states are currently engaged in predatory activities. In other instances, the probability of predatory behavior over the next decade might lie in the range from 0.1% to 1%; or from 90% to 100%; or in some other range.

The other weakness in Mearsheimer’s analysis seems to me to be an excessive focus on China as the potential hegemon. I agree with his analysis and policy prescription relating to China - as long as “containment” is pursued in a manner that can be presented to the Chinese government as a response to its aggressive policies toward its neighbors, rather than as an attempt to impede China's peaceful interactions with its neighbors.

 It seems to me, however, that communities of peaceful nations should be concerned to discourage all states from predation on their neighbors.  States that profit from predation have no incentive to stop until they assess that the costs of further predation are outweighed by the benefits. States in the neighborhood of Russia, Iran, and North Korea have good reasons to seek to contain the aggressive tendencies of those countries. Given that China, Russia, Iran and North Korea engage in military cooperation with each other, it would be particularly unwise for the U.S. and its allies to be unduly pre-occupied with responding to the rise of China.

Conclusions

John Mearsheimer’s theory of aggressive realism suggests that the over-riding goal of each state is to maximize its share of world power. He argues that there are powerful incentives for all great powers to act offensively with regard to each other.

The crucial assumption that Mearsheimer makes is that no state can ever be certain about another state’s intentions, regarding use of offensive military capability. I argue that it is possible for states to make probabilistic assessments about the intentions of other states based on past behavior and the rhetoric of their leaders.

It is not difficult to identify nations that have a recent track record of predatory behavior. Peaceful nations have an obvious incentive to band together to enforce international rules that outlaw invasion and other violent predatory activity.

Mearsheimer’s concerns about challenges that could arise from emergence of a new hegemon have led him to focus on the risks posed by the rise of China. While I agree with much of his analysis regarding the threat posed by China in the years ahead, it would be unwise for peaceful nations to overlook the threats currently posed by others (including Russia, Iran and North Korea) who clearly have predatory intentions toward other jurisdictions in their neighborhoods and are currently engaging in military cooperation in pursuit of their several objectives.