Competing Visions of Cronyism within the Virginia School of Political Economy

The growing entanglement between political and economic elites has fueled concerns about inequality, stagnation, and democratic erosion. Both critics of capitalism and classical liberal thinkers condemn the privileges and rent-seeking that arise in this context-but they diverge in their diagnosis. Critics see these outcomes as the result of capitalism. Classical liberals, by contrast, view them as a betrayal of capitalism's core principles. This paradox raises two fundamental questions: first, does our current system truly reflect capitalism? And second, even if does not,what is the nature of our system and what is its relationship with capitalism? To explore these questions, we turn to the Virginia Political Economy (VPE) tradition, beginning with Buchanan, Tullock, and Tollison's theory of rent-seeking. Following this line of inquiry, Randall Holcombe and Richard Wagner both argue that our current system is more accurately described as cronyism rather than capitalism. However, they differ in their interpretations of cronyism's origins and implications. Holcombe views cronyism as a distortion of Adam Smith's system of natural liberty-an unintended but inevitable byproduct of capitalism. In contrast, Wagner envisages cronyism as an inherent feature of all economic systems, not a deviation from capitalism but a fundamental reality of political-economic entanglement. While both agree that our current system is not capitalism, Holcombe argues that capitalism leads to cronyism, whereas Wagner contends that cronyism predates capitalism and actively shapes its development, rather than emerging from it.

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