Unanimity in the Mind of Knut Wicksell

When was the last time your friends unanimously decided to go to a restaurant? And when was the time when your family collectively chose a place for the vacation?


While it is difficult to consent to small meetings and agreements, thinking of how the government decides on votings and passing bills astonishes our minds. Arriving at unanimous decisions are significant in the fields of law and economics, which within itself is a great deal, as it is hard to stick to decisions in unison. It leads us to believe that Unanimity is an ambiguous principle. True that, but it has been an intriguing phenomenon for economists specializing in social choice and public economics. This article takes you through the unanimity rule from the perspective of Wicksell.




Johan Gustaf Knut Wicksell was a Swedish economist with his pioneering work in modern macroeconomics and other economic theories. Being from the Stockholm School, Wicksell also made revolutionary contributions in social reforms, philosophy and public finance. Apart from academic writings and government reports, Wicksell often registers his ideas and insights in the form of newspaper editorials, press writings, pamphlets, and articles. He published an essay based on taxation in Ekonomisk Tidskrift, now known as the Stockholm Journal of Economics. The book titled Finanztheoretische Untersuchungen was first issued in 1896 and later translated in English in 1967 as A New Principle of Just Taxation.


Unanimity Rule in Public Finance


In the New Principle of Just Taxation, Wicksell gave an economic interpretation for the use of the benefits principle of taxation and how they were evaluated while implementing the tax proposals. It was in this book he technically talked about the unanimity rule for parliamentary actions. He also claimed that the taxing practice premised on the benefit principle was most appropriate to the modern tax system, especially for the parliamentary approval of taxes in the economy. The early theories of public finance were primarily based on the political philosophy of Absolutism, but Wicksell’s concept is from the parliamentary organization and the constitution. He saw unanimity rule as the key to draw an inference from the possible combinations of the expenditure-tax framework in the economic system.

Generally, when the government decides to undertake public expenditure, it accordingly accounts for the spending activity in the form of taxes. Hence, in this process, a collective decision is vital to execute them. It is where Wicksell imputed the importance of unanimity rule, which determines the best pair of expenditure and tax by the parliament. The representatives can vote on several consecutive expenditure-tax sets until a particular combination receives the unanimous decision. Wicksell asserted that the operation is practically feasible as it could enable the people to choose the best combination where the expending activity is beneficial. Moreover, in these situations, individuals and communities have limited motivation to deceive their preferences, as it could backlash and impact the decision on providing the services.


Many economists criticized A New Principle as minority groups could demand more favourable tax treatment if the public administration exercised functions according to the unanimity rule. To that, Wicksell confirmed that his thoughts inclined to economic justice since he felt that no individual needed to pay extra for a commodity than its actual worth. It is what he considered should apply in the case of public taxation. Besides, he also argued that if people get fairly treated in the tax-expenditure process, there would be no room for the veto as they certainly provide them with positive net benefits. Since Wicksell devoted his time for social reforms, he firmly believed that people are unbiased and rational in the decision making process. Hence, it is evident that fairness of treatment is supposedly a crucial characteristic in a typical democratic setup by emphasizing that he had not disapproved the taxes to be paid by the people.


Pareto vs Wicksell Unanimity: How identical are they?


Most of the public economics theories developed by Buchanan and Musgrave had their influence and anchoring thoughts from Knut Wicksell ( A New Principle of Just Taxation). They both agreed about the Wicksell Unanimity rule on varied reasons. They advocated his opinion of benefit taxation rather than the ability-to-pay principle, which was relevant in the public administration. Furthermore, they also observed the relevance of unanimity rule in the decision-making process for collective goods and voluntary exchange phenomenon. Wicksell was individualistic as his arguments strongly implied that individuals form the basis of theories of government and are the appropriate decision-making units.


How Buchanan and Musgrave understood Wicksell and his economic philosophy was contradictory, however, they asserted with specific ideas. Buchanan stated that the theory of benefit taxation under the unanimity rule can be interpreted in terms of the Pareto conditions for optimum welfare. That, apparently no individual is worse off if any possible allocation of the necessary taxes regarded as a fair treatment by everyone. He also believed that the theory of public goods by Wicksell is consistent with Pareto efficiency, and thus, can be achieved by considering explicit unanimous agreements. On the other hand, Musgrave pointed out that Wicksell extended his principle further to discuss the approximate unanimity voting process in the revision of A New Principle. Therefore, from the perspective of Buchanan, absolute unanimity renders guaranteed Pareto efficient outcomes which are attainable at the constitutional level. Musgrave suggested that the use of absolute unanimity obscures the pertinence of approximate unanimity, as it helps construct an alternative approach to public finance.


While Wicksell worried that his work on the public economics domain had been unnoticed, it has been later recognized by notable economists with similar concerns. Like many scholars' statements, Wicksell also had unusual interests and principles that thrived him to study societal problems. Erik Lindahl, another prominent economist, who worked on the determination of the revenue-expenditure process contained Wicksell exposition of the just taxation system. Furthermore, Antonio De Viti De Marco, Lindahl, and Wicksell have viewed taxes as voluntary purchase payments for individual shares of a public good.


Definitions:

Absolute Unanimity - Compulsion of the majority by the minority.

Approximate Unanimity - Limited Compulsion and redistribution which is not feasible under strict unanimity.


References:

  1. Johnson, M. (2006). The Wicksellian unanimity rule: The competing interpretations of Buchanan and Musgrave. Journal of The History of Economic Thought, 28, 57-79.

  2. Johnson, Marianne. (2010). Wicksell's Social Philosophy and his Unanimity Rule. Review of Social Economy. 68. 187-204. 10.1080/00346760802714859.


Further Readings:

  1. Silvestre, J. (2003) Wicksell, Lindahl and the Theory of Public Goods, Scandinavian Journal of Economics, 105 (4), pp. 527–53.

  2. Buchanan, J. M. (1952) Wicksell on Fiscal Reform: A Comment, American Economic Review, 42 (09), pp. 599–602.

  3. Gardlund, T. (1996) The Life of Knut Wicksell (Brookfield, VT: Edward Elgar).

  4. Hansjurges, B. (2000) The Influence of Knut Wicksell on Richard Musgrave and lames Buchanan, Public Choice, 103 (April), pp. 95–116.

by Bharathi J (aqf18bharathi@mse.ac.in)