Of Public Interest

Volume 1, Number 4
December 1999

Campaign Finance Reform: Confusing Cause and Effect
by Richard E. Wagner

As America approaches another year of national elections, the high cost of campaigns is once again making the headlines. Many proposals have been advanced before the public and in Congress to limit campaign spending. Particularly strong attention has been given to the bill sponsored by Senators John McCain (R-AZ) and Russell Feingold (D-WI).

The McCain-Feingold bill, as well as most of the other proposals that have surfaced, would impose some stringent restrictions on political speech. In the two months before primary and general elections, access to radio and television for purposes of providing politically-relevant information would be prohibited to everyone but official candidates. What is called issue advocacy, as distinct from the advocacy of particular candidates, would be restricted permanently.

Such proposals as these are claimed to be necessary because the campaign restrictions enacted in the 1971 Federal Election Campaign Act (FECA) and its 1974 amendments are thought to be inadequate. Prior to FECA, people could make whatever contributions they chose to campaigns. After FECA, they were limited to $1,000 per candidate per election, along with a maximum of $25,000 for all candidates and parties in a particular election.

FECA also limited the amount that candidates could spend on their own behalf, but this provision was struck down in 1976 by the Supreme Court in Buckley v. Valeo. Before FECA, such wealthy industrialists as Stuart Mott could help to finance the presidential bid of a Eugene McCarthy. After FECA, a Ross Perot had no option but to become a candidate.

Reformers claim that money corrupts politics. Restrictions on campaign spending are thus advocated as a means of cleansing politics. What we have before us is yet another morality tale, in this case of political purity being corrupted by the lure of the filthy lucre. Remove the corrupting cause, money, and purity will be restored.

The trouble with this morality tale is that it is false. It reverses cause and effect. The 19th century British Historian Lord Acton had it right when he explained that "power corrupts, and absolute power corrupts absolutely." It is the growth in the power of government to dispense favors and impose penalties on people that attracts money into politics. Sometimes this money comes in an effort to secure political favors. Other times it comes in an effort to prevent political harms from being done. But it comes in either case. The more deeply government is involved throughout our economy and society, the more fully the money comes. Big and powerful government attracts money, and always will so long as it is big and powerful.

There is a fundamental economic principle that the amount of money that people invest in any activity depends on the returns that they expect to receive. People spend several times more for a seat on the New York Stock Exchange than they spend for one on the American Stock Exchange. The greater spending on NYSE seats reflects the greater value of the business opportunities that people believe membership on the NYSE entails. It is the value of the commercial opportunities that governs the price that people are willing to pay.

It is no different for contributions to political campaigns. The amount that people contribute to political campaigns is governed by the value they place on gaining access to candidates. Large, interfering governments of the sort we now have are able to affect people’s earnings in all industries throughout the land through changes in taxes and regulations.

It is no wonder that so many trade associations have located in Washington D.C. Nor is it any wonder that so many corporate executives pass through Washington regularly on business. No products are produced in Washington, but political decisions can have significant impacts on the fortunes of particular enterprises. A large, interfering government that can fine-tune specific tax provisions as it chooses will elicit larger campaign contributions than a government that is bound by principles of neutrality among people, groups, and types of business.

A government that is subject to strong constitutional limits will have limited ability to affect the commercial value of specific enterprises, upward or downward. With election outcomes thus having less impact on the value of particular enterprises and activities, fewer campaign contributions will be made. The stronger the constitutional limits on government, the narrower the scope for venality in politics. Elections are becoming more expensive because government has acquired ever greater control over our lives, and has naturally used that power to confer privileges on some and impose liabilities on others. It is unlimited government and its ability to change people’s fortunes for good or bad that causes costly battles for political office. Restrict the ability of government to affect people’s fortunes, and elections will naturally become less costly.

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