The Review of Austrian Economics, 15:2/3, 121–129, 2002.
2002 Kluwer Academic Publishers. Manufactured in The Netherlands.
Constitutional Implications of Radical Subjectivism
JAMES M. BUCHANAN AND VIKTOR J. VANBERG
Abstract. This paper examines the role that creative choice, as stressed by Shackle, plays in the generation of
economic value. In particular, we evaluate the relationships between creative choice, economic value and the
institutional structure of an economy.
Key Words: constitutionalism, creative choice, entrepreneurship, subjectivism
JEL classiﬁcation: B40, H110.
In an earlier paper, we examined the apparent afﬁnities between the radical subjectivist re-
search program in economic theory and those programs in the physical sciences that analyze
patterns of order in away-from-equilibrium settings (Buchanan and Vanberg 1991). If single
names are helpful, our earlier paper could be summarized as an effort to compare the ap-
proach to economic theory associated with the work of G.L.S. Shackle with the approach to
physics associated with the work of Ilya Prigogine and his followers. In this follow-on paper,
we propose to examine more carefully the role that creative choice, as stressed by Shackle,
plays in the generation of economic value. In particular, we want to evaluate the relationships
between creative choice, economic value and the institutional structure of an economy.
We shall suggest that a generalized failure to appreciate the role of creative choice
in providing the dynamic for economic interaction may have been an important causal
element in economists’ failure to escape from the “fatal conceit” that socialist organization
represented (Hayek 1988). To put our central conclusion dramatically, but succinctly, we
shall argue that socialism failed not only because of incentive incompatibility and an inability
to utilize knowledge effectively; socialism failed, also, because it allowed little scope for
the exercise of creative choice on the part of the participants in the economic process. Or, to
state the conclusion somewhat differently, universalized benevolence could surmount the
incentive incompatibility; universalized omniscience (in its usual meaning) could surmount
knowledge limits. But even perfect altruists who know everything must live and work in
real time. The best of intent will not allow the future to be brought within the present, no
matter how perfect the knowledge of the present may be. And if the institutional structure
embodies the presupposition that such a feat is possible, stagnation and failure must emerge.
In Section 2, we return to basics, and we deﬁne creative choice by comparison and
contrast with that which one of us has called reactive choice, almost the exclusive domain
of orthodox economic analysis (Buchanan 1989). And we relate this two-part classiﬁcation
of choice to two strands of interpretation of the entrepreneurial role in a functioning market