… is from pages 258-259 of my late Nobel-laureate colleague James Buchanan’s 1991 paper “The Minimal Politics of Market Order,” as it is reprinted in Choice, Contract, and Constitutions (2001), which is volume 16 of The Collected Works of James M. Buchanan:
Bureaucrats who possess discretionary authority to allocate or distribute access to economic value will, of course, have opportunities for pecuniarily beneficial trades for the simple reason that the allocative-distributive authority itself has value. And there is surely some positive correlation between opportunities for, and the exploitation of, gain.
But the problems of bureaucratic discretion do not lie exclusively, or even primarily, with bribery. First, these problems exist because of bureaucratic discretion itself, which implies that choices must be made among claimants on some basis other than economic value. In this respect, the introduction of bureaucratic discretion made necessary by political pricing becomes a source of the relative inefficiency of the whole structure. Second, the dependency relationship introduced between those persons who hold discretionary authority and those who are subject to that authority creates arbitrary class distinction. Third, and perhaps most important, the artificially created scarcities under political pricing become objects of socially wasteful investments. People find it privately rational to invest resources in efforts to secure differentially favored access to the economic power inherent in bureaucratic discretion. This rent seeking on the part of those who compete for the scarce access to valued goods (such as those who demand bread at the zero price) represents wasteful investment on the part of all people who are unsuccessful in the competitive effort.
DBx: In short, much private money is spent to influence political outcomes because much politics is spent to influence private outcomes.
Also note – with respect to Jim’s above concluding sentence – that while the expenditures of successful rent-seekers are judged by these rent-seekers, and by the privilege-givers, to be worthwhile (that is, not wasteful), these expenditures are wasteful not only from the standpoint of unsuccessful rent-seekers. Rent-seeking expenditures are wasteful for society as a whole. Resources that would otherwise have been used to produce valuable outputs for sale to consumers are instead used to seek anti-social privileges (“private legislation”).
