JAMES M. BUCHANAN AND THE REBIRTH OF POLITICAL ECONOMY

PETER J. BOETTKE, George Mason University

If not an economist, what am I? An outdated freak whose functional role in the general scheme of things has passed into history? Perhaps I should accept such an assessment, retire gracefully, and, with alcoholic breath, hoe my cabbages. Perhaps I could do so if the modern technicians had indeed produced "better" economic mousetraps. Instead of evidence of progress, however, I see a continuing erosion of the intellectual (and social) capital that was accumulated by "political economy" in its finest hours.
                                                                         James Buchanan (1979, p. 279).
 

INTRODUCTION

It is somewhat odd to consider anyone who has received his profession's highest honor, the Nobel Prize, to be an outsider.¹ Outsider status is usually reserved for those who toil in obscurity. Buchanan attended the University of Chicago, taught during the formative period of his career at the University of Virginia, published articles in the American Economic Review and the Journal of Political Economy and books with the University of Chicago Press and Cambridge University Press, was named the Distinguished Fellow of the American Economic Association, and received National Science Foundation Grants as well as lucrative private foundation grants to aid his development of public choice economics. His former students have taught at some of the finest institutions of higher learning in the US (Cornell, Penn, Cal Tech, and University of Virginia, for example) and some have held high public office, Director of the Federal Trade Commission, Director of the Office of Management and Budget, and the Under Secretary of the Treasury, for example). Why should such a well-connected character be included in a volume about dissenters?

Brave individuals who buck the intellectual trends of their time, usually at great professional cost, to pursue the time honored tradition of truth irrespective of professional concerns grace these pages, not those who have garnered all the rewards that are to be reaped. But Buchanan's career, like some crucial aspects of his thought itself, is at tension with itself. True he taught at the University of Virginia, but he left there due to internal university political troubles and taught at lesser known schools for the past thirty or so years.² The public choice revolution was begun at University of Virginia in the 1960s, but it was at Virginia Tech in the 1970s that the revolution took hold of significant minds in the profession and at George Mason University in the 1980s that it was publically acknowledged as victorious on several theoretical fronts in public economics, and emerged as a paradigmatic framework for studies across the various fields in economics. Buchanan has spent a good part of his career as an insider who thought as an outsider, and as an outsider who possessed an insider's claim on the professional establishment. As he has argued, he never would have received the Nobel Prize if the committee consisted of American senior economists, for his work was by far appreciated more in Europe than at home in the US research community.

Buchanan is not the only Nobel Laureate to "suffer" this fate: F. A. Hayek and Gunner Myrdal, Herbert Simon, Ronald Coase, and Douglass North were awarded the prize despite their rejection of the conventional wisdom in economic science in terms of methodology, politics, and field of study. Buchanan's awarding of the prize, however, was special in this regard. Teaching outside of the academic establishment of his age, Buchanan took great pride in his Southern heritage and the intellectual challenge he represented to the mainstream economic profession. As he himself has put it: "... how many farm boys from Middle Tennessee, educated in tiny, poor, and rural public schools and at a struggling state-financed teachers college, have received the Nobel Prize? How many scholars who have worked almost exclusively at southern universities have done so, in any scientific discipline? How many of my economist peers who are laureates have eschewed the use of both formal mathematical techniques and the extended resort to empirical testing?" (Buchanan 1992, p. 164).

Buchanan has made original contributions to methodology, social philosophy and public policy economics, as well as the discipline of political science. I will limit my discussion to three areas which define him as a major dissenter from the mainstream of professional opinion in economics during his career. Buchanan burst the romantic vision of politics that dominated political science and was reflected in the mainstream economics treatment of market failure theory and public economics in general during the 1950s to 1970s. In addition, Buchanan was one of the most significant scholars to challenge the late classical formalism of modern economics with a restated consistent subjectivism. Finally, Buchanan reintroduced economics to its sister discipline of moral philosophy and laid the foundation for a modern political economy.
 

AN OVERVIEW OF BUCHANAN'S CONTRIBUTION

Buchanan's personal biography can be found in his entertaining Better Than Plowing (1992). Born in rural Tennessee, educated at the local public school and then the local college, Middle Tennessee State Teachers College (where he paid for his college fees and books by milking dairy cows), a year of graduate study in economics at the University of Tennessee (where he learned little economics, but much about life), Naval duty during World War II, and then (with the aid of the GI subsidy) to the University of Chicago to earn a PhD in economics. A self-described libertarian socialist on his arrival at Chicago -- his grandfather's populist pamphlets had left their imprint -- Buchanan was "converted" to his classical liberalism after six-weeks of price theory with Frank Knight. The libertarian values remained, but now Buchanan understood through Knight that the market (not government) was the organizational form most consistent with those values. Knight became for Buchanan his intellectual role model -- challenge everything and anyone, nothing should be treated as sacred, and recognize that most ideas peddled about are nonsense. Also at Chicago, Buchanan discovered Knut Wicksell's principle of just taxation while browsing Harper Library. Buchanan's thought to a large extent can be summarized as the persistent and consistent development of these two intellectual influences from Knight and Wicksell. The final intellectual influence was the Italian tradition of public finance that Buchanan was exposed to during a Fulbright Fellowship year. This tradition emphasized "real" as opposed to ideal politics, and as such the final piece of the intellectual puzzle that led to Buchanan's development of public choice theory was in place.

From Knight, Buchanan got his basic economic theory framework and the idea that economics is not a science in the traditional meaning of that term. From Wicksell, Buchanan learned that politics needs to be understood in an exchange framework. Efficiency in the public sector would be guaranteed only under a rule of unanimity for collective choices. From the Italians, Buchanan learned that public finance theory must necessarily postulate a theory of the state, and that it would be best to reject either the Benthamite utilitarianism or the Hegelian idealism in postulating such a theory. In retrospect, once these three elements were brought together, then the necessary foundational framework for Buchanan's contributions to the economics of the public sector were there, what remained was the working out of the implications.³

In an assessment of Buchanan's political economy Agnar Sandmo (1990) has argued that Buchanan's "main achievements have been to introduce his fellow economists to new ways of thinking about economics, in particular about the public sector and the interaction between economics and politics" (pp. 62-63). By recasting the questions of public finance in light of this Knight/Wicksell/Italian connection Buchanan was able to challenge the received wisdom of his day on several fronts.⁴ For example, the Keynesian theory of functional finance met perhaps its most fundamental challenge in Buchanan's Public Principles of Public Debt (1958). Buchanan challenged the Keynesian doctrine on methodological and analytical grounds. The level of aggregation in Keynesian fiscal theory, for example, strained imagination, violated the political norms of democratic society, and fundamentally misconstrued the nature of the debt burden. By confining their focus to the aggregate unit, fiscal theorists were unable to address the problem of who will have to pay for the creation of public goods and when payment will be made. The problem was an elementary one -- the principle of opportunity cost and economic decision-making was forgotten in the Keynesian.

The controversy over the burden of debt issue forced Buchanan to re-examine the conceptual foundations of economic science and this led to his slim, but broad in implication, volume, Cost and Choice (1969). The consistent and persistent pursuit of the opportunity cost logic of economics would lead to surprising results on a broad range of issues, from the burden of debt to issues concerning the military draft to the problem of externalities to the choice context of bureaucratic decision-making. We will return to the substantive issues involved with subjectivism shortly, but the point to stress here is how by compelling his fellow economists to re-examine the conceptual foundations of the discipline at a time when these foundations had been lost sight of characterized Buchanan's outsider status. The burden of debt debate, in other words, was typical of Buchanan's career -- he was viewed as an outsider because he asked economists to pay attention to the most elementary principles of their discipline. One of Buchanan's favorite challenges to his peers is: "How much more do we know today about the market that Adam Smith didn't know in 1776?" By announcing that the modern technical Emperor has no cloths, Buchanan served an important intellectual function well-beyond his own substantive contributions to economic issues.⁵

During the 1970s, Buchanan's work shifted to the social philosophical. Limits of Liberty (1975) is his statement of the contractarian perspective in political economy. This was followed by collections of essays in Freedom in Constitutional Contract (1977), Liberty, Market and State (1986), and The Economics and the Ethics of Constitutional Order (1991). In recent years Buchanan's interest have moved to issues surrounding increasing returns in economic theory, see Buchanan and Yoon, eds., The Return of Increasing Returns (1994), and the positive role of the work ethic in economic progress. Unlike the other scholars working on the technical and policy implications of increasing returns, in either modern endogenous growth theory or in the work on path dependency, Buchanan's focus is on the generalized increasing returns to specific institutions and practices. His concern is to understand, once again, Adam Smith's argument about the increasing returns from specialization and exchange and the institutional environment that channels our human inclination to "truck, barter and exchange" in the appropriate direction to realize these increasing returns.

There is a surprising unity in Buchanan's research purpose throughout his career and the basic propositions which guide his work can be summarized neatly (see Buchanan 1979, pp. 280-282).

1. Economics is a "science" but not like the physical sciences. Economics is a "philosophical" science and the strictures against scientism offered by Frank Knight and F. A. Hayek should be headed.
2. Economics is about choice and processes of adjustment, not states of rest. Equilibrium models are only useful when we recognize their limits.
3. Economics is about exchange, not about maximizing. Exchange activity, arbitrage, that should be the central focus of economic analysis.
4. Economics is about individual actors, not collective entities. Only individuals choose.
5. Economics is about a game played within rules.
6. Economics cannot be studied properly outside of politics. The choices among different rules of the game cannot be ignored.
7. The most important function of economics as a discipline is its didactic role in explaining the principle of spontaneous order.
8. Economic is elementary.

From his early critique of social choice theory and welfare economics to his most recent writings on constitutional design, Buchanan's work persistently stresses these eight points. Finally, it is important to recognize the basic methodological schema that Buchanan employs to address questions in political economy and how this schema allows him to weave these eight propositions into a coherent framework for social theory. He emphasizes that we must distinguish between pre- and post- constitutional levels of analysis. Pre-constitutional analysis opens up the discourse over the rules of the game, while post-constitutional analysis reflects an examination of the strategies players adopt within the defined rules. Political economy, properly understood, is the tacking back and forth between these two levels of analysis. Successful application of modern political economy to the world of public policy demands that the analyst adopt such a constitutional perspective. In this regard, Buchanan introduces the vital distinction for applied political economy of "policy within politics" and the systematic change in the rules of the game. Lasting reform, Buchanan argues, results not from policy changes within the existing rules (or changes in people), but rather from systemic changes in the rules of governance. Thus, far from the "conservative" intellectual that many falsely believe him to be, Buchanan is an intellectual radical seeking to get at the root cause of social/political ills. This final point is apparent upon examination of how Buchanan has re-focused the research attention of a generation of scholars.
 

THE END OF ROMANCE

There is an ancient legend that has it that a Roman Emperor was asked to judge a singing contest between two participants. On hearing the first contestant, the Emperor simply gave the prize to the second under the assumption that the second could be no worse than the first. Of course, the Emperor's assumption could in fact be wrong. The second singer could have indeed been worse. The theory of market failure as developed in the 1950s committed the same mistake as the Emperor. Demonstrating that the market economy failed to live up to the ideals of general competitive equilibrium was one thing, but to gleefully assert that public provision could costlessly correct the failure was quite another matter. Unfortunately, much analytical work proceeded in such a manner.⁶ Many scholars during the 1960s burst the bubble of this romantic vision of the political sector in comparison with the less romantic vision of the market. But it was Buchanan and Tullock's comprehensive examination of the political market that deserves the credit for shifting scholarly focus.

Before Public Choice it was common place in economic theory to postulate an objective welfare function which "society" sought to maximize, and to assume that political actors were motivated to pursue that objective welfare function. The Buchanan/Tullock critique amounted to simply pointing out that (1) no objective welfare function exists, (2) that even if one existed "societies" do not choose, only individuals do, and (3) that individuals within the political sector, just as in the private sector, base their choices on their private assessment of costs and benefits.⁷

Many of the major insights of modern political economy flow from these three elementary propositions, including the vote motive; the logic of dispersed costs and concentrated benefits; the shortsightedness bias in policy; and the constitutional perspective in policy evaluation. Politics must be endogenous in any reasonable model of economic policy making, and realistic political processes is not something to be romanticized. But the intellectual spirit of the age (the 1950s and early 1960s) was one of overly zealous optimism about the beneficial nature of politics. The Buchanan warning of democratic folly, and the need for constitutional constraint was one that did not sit well with the intellectual/political idealist of the day. In the wake of the Vietnam War, and then Watergate, as well as the failed economic policies that have emerged from both Democratic and Republican administrations during the post WWII era, it is now difficult to imagine a non-cynical view of politics. This is not an endorsement of apathy and malcontent with politicians. Nowhere in the Buchanan body of work is it suggested that politicians are any worse than the lot of us. Rather, his work simply stressed that politicians are just like the rest of us -- neither sinners or saints, but a bit of both.

On a methodological front, Buchanan employed the assumption of economic man within politics not as a description of the motivation of any particular political actor but rather as a modelling strategy in constitutional design. In developing models of public finance, as pointed out above, Buchanan learned from the Italians (and from Wicksell) that one must postulate a theory of the state. By postulating the revenue maximizing Leviathan, Buchanan was able to address the political rules of the game which would constrain the behavior of individuals within politics. In particular, if government officials are revenue maximizing, then the question becomes what rules of the game are necessary to transform revenue maximizing behavior into wealth maximizing behavior? This is a question of constitutional design -- one that affects the time preference of rulers and the range of policy choices at their disposal for pursuing their interests. In both his books with Geoffrey Brennan, The Power to Tax (1980) and The Reason of Rules (1985), Buchanan was able to employ the economic man assumption to establish rules which guard against "worst case" scenarios in politics. Even if rulers were sinners, then it would be an important political theory result to design a constitution that would compel these sinners by constraints to act more like saints.

In order to develop such a idealized constitutional political structure (a vision of a workable utopia), one had to first deconstruct the idealist/romantic vision of politics where unconstrained democracy is envisioned as an workable model of self-rule and designed "by the people, for the people" and substitute a more realist vision of political processes. Buchanan (and Tullock) were able to accomplish that with the aid of elementary economic reasoning, most notably the idea that only individuals choose, that in making their choices they weigh costs and benefits, and that the way individuals perceive costs and benefits depends on the institutional context within which they must choose. Simple concepts when applied consistently and persistently often generate surprising results that must be repeatedly stressed. One motto adopted by Buchanan has been the Spencer quote that: "Only by varied reiteration can alien conceptions be forced on reluctant minds."

SUBJECTIVISM AND THE ELEMENTARY PRINCIPLES OF ECONOMICS

Ironically, one of the alien conceptions that modern economists were reluctant to accept, Buchanan discovered, was the "economic way of thinking". In particular, the central role of exchange and the notion of subjectively assessed trade-offs. In "What Should Economists Do?", Buchanan's Presidential Address to the Southern Economic Association in 1963, the case was made for economists to put the contributions of constrained maximization in perspective (Buchanan 1979, pp. 17-37). The resource allocation issue was not the central problem of economics. Economists should, Buchanan urged, concentrate their attention on the human propensity to truck, barter, and exchange, and the institutional arrangements that emerge as a result of this propensity.

If this step is not taken, then it is too easy for error to sneak into economic analysis and become embedded at the most fundamental level. The allocational definition of economics, for example, "makes it all too easy to slip across the bridge between personal and individual utility of decisions and 'social' aggregates" (ibid., pp. 22-23). Economists know that crossing the bridge is quite difficult, and Lionel Robbins was successful in dissuading many in their efforts at summing utilities to get across the bridge. But Robbins' methodological critique was only partially successful, for now under the Robbins inspired definition of economics economists thought that as long as they specified the social welfare function under consideration they can "maximize to their own hearts' content." Buchanan's point is that this intellectual exercise is illegitimate for the practitioners of economics. Economists should not engage in this activity.

The Buchanan critique of optimizing models is not about the introduction of value judgements into science via the social welfare function, or a critique of formalization per se. His critique is that the subject matter of economics is lost in these exercises in applied mathematics, and that in cases where the subject matter seems to creep back into the analysis it is mischaracterized. The mutuality of advantage that can be realized through exchange within specified institutional settings is the one important truth of the discipline of political economy, Buchanan insists, and modern economics has threatened our ability to understanding this "truth".

Consider, for example, Buchanan's critique of the model of perfect competition in light of his plea for exchange activity to occupy the central place in economic theorizing. Perfectly competitive general equilibrium by design eliminates all social content from individual decision-making. The individual confronts an array of externally determined variables, and his "choice" problem is transformed into a mechanical problem of computation. But, within such a world there is only an equilibrium point and as such the model cannot capture the dynamics of competition, and (for the same reason) the trading behavior which would prod a system to an equilibrium, if one was to be obtained, in the first place. Buchanan summarizes the point nicely:

A market is not competitive by assumption or by construction. A market becomes competitive, and competitive rules come to be established as institutions emerge to place limits on individual behavior patterns. It is this becoming process, brought about by the continuous pressure of human behavior in exchange, that is the central part of our discipline, if we have one, not the dry rot of postulated perfection. A solution to a general-equilibrium set of equations is not predetermined by exogenously determined rules. A general solution, if there is one, emerges as a result of a whole network of evolving exchanges, bargains, trades, side payments, agreements, contracts which, finally at some point, ceases to renew itself. At each stage in this evolution toward solution there are gains to be made, there are exchanges possible, and this being true, the direction of movement is modified.

It is for these reasons that the model of perfect competition is of such limited explanatory value except when changes in variables exogenous to the system are introduced. There is no place in the structure of the model for internal change, change that is brought about by men who continue to be haunted by the Smithean propensity. But surely the dynamic element in the economic system is precisely this continual evolution of the exchange process, as Schumpeter recognized in his treatment of entrepreneurial function. (ibid., pp. 29-30, emphasis in original).

One of the principle advantages of the subjectivist economics is to compel theorists to avoid the pitfalls of the free floating abstractions that are too often the end-product of formalism and the momentary concreteness that is often the best that can result from positivistic empiricism. Subjectivism "grounds" economic analysis in the choices of individuals, and demands that empirical analysis pay acute attention to the institutional context of choice and how agents within the context under examination perceive their institutional constraints. The mechanical model of allocational computation, and its corollary - the model of perfect competition - eliminates from study the idea of genuine choice, just as the focus on pre-processed aggregate data necessarily must ignore the ideas, desires, beliefs, cultural practices, etc., that motivate historical actors.

In areas of public policy Buchanan's great contribution to subjectivist thought was to demonstrate in Cost and Choice how a consistently subjectivist position would lead to a different perspective on many issues, including basic issues in public finance, the burden of the debt, the supply and demand of public goods, externalities and the doctrine of social cost, the military draft, and non-market decision making in general. The meta-level contribution, as pointed out already, was to challenge the very notion of an objective social welfare function that was to be maximized. On a more concrete microeconomic analytical level, Buchanan was able to demonstrate, for example, how the burden of debt is passed on to future generations rather than consumed at the current moment in terms real resources. In the burden of debt controversy, Buchanan was able to criticize both the theory of functional finance and the traditional theory of public finance that the real cost of debt is incurred at the moment when the resources are employed.⁸ The theory of functional finance was challenged on two grounds. First, the theory failed to postulate a model of political actors and as a result failed to recognize that political actors would lack the incentive to ever run surpluses during economic "good times." In other words, the logic of politics -- which is to generate a policy mix which yields short term and easily identified benefits at the expense of long term and largely hidden costs -- conflicts with the basic idea of using the budget to balance the economy. In "bad" economic times of course the incentive to run deficits is there, but why would a politician ever want to reduce expenditures and raise revenue during "good" times? The policy of functional finance if pursued as designed would reverse the logic of politics by concentrating costs and dispersing benefits during times of plenty, and that is incentive incompatible with electorial politics. Second, the Keynesian orthodoxy failed to take into account the generational transfer of the burden of the debt. Of course, this intergenerational transfer reinforced the political logic because for a current day politician the least informed and ill-organized interest group would be the as-yet born, and thus the main constituency he can afford to ignore in policy deliberations.

Buchanan's emphasis on the tight relationship between the act of choice and the notion of cost compelled him to criticize the traditional theory of public debt as well as the Keynesian theory of functional finance. During war, for example, it was traditionally argued that the opportunity cost of debt-financed public goods was the alternative use for which those resources would have otherwise be put. Steel was used to produce guns in say 1965, not automobiles. By introducing the distinction between choice-influencing and choice-influenced costs, Buchanan was able to show the fundamental error in the traditional theory. It is true that resource use is shifted, but the issuance of debt instruments entails obligations to service that debt in future periods. "The costs of debt issue," Buchanan argued, "in the way that they may influence a decision among fiscal alternatives, must be reflected in the decision-maker's subjective evaluation of these subsequent outlays. In the choice-influencing sense, these costs are concentrated in the moment of choice and not in the later periods during which the actual outlays must be made. But the choice-influencing, subjective costs exist only because of the decision-makers recognition that it will be necessary to make future-period outlays" (1969, p. 64). The choice-influenced costs of debt-financing, that is the utility forgone as a result of the choice, are borne solely in the future.

Cost, Buchanan insisted, must be understood as the subjective assessment of trade-offs by individuals if it is going to have any meaning in a theory of decision-making. A final example which may drive the point home of the importance of persistently thinking along opportunity cost lines is Buchanan's critique of Pigovian taxes as correctives. The Pigovian remedy was to bring marginal private costs (subjectively understood) into line with marginal social costs (objectively understood). The problem, Buchanan pointed out, was that the analyst had to specify the conditions under which objectively measurable costs could be ascertained by economic and policy actors. In general competitive equilibrium, the costs that are measurable do serve as a reasonable proxy for the subjectively held assessment of trade-offs of individuals. But, under the conditions of general competitive equilibrium there are also no deviations between marginal private costs and marginal social costs, i.e., there are no external effects. In other words, Buchanan (like Coase) pointed out that either Pigovian tax remedies are possible, but therefore redundant, or impossible to set because the conditions presupposed for their establishment either eliminate their necessity or (if absent) preclude their enactment.⁹

The neoclassical project where the subjective half of the 1870s revolution in value theory is emphasized as strongly as the marginalist half, leads to a different sort of economic science. In a broad brush summary, it leads to a conception of economics science as a philosophical science, and not a technocratic one. Unlike other critics of modern economics, such as Institutionalist or Post-Keynesians, the subjectivist tradition of neoclassicism retains the commitment to universality, an emphasis on marginalism, and on the study of how a systematic order emerges as the unintended consequence of individual choice within the context of strictly defined and enforceable property rights. However, unlike modern economics, the subjectivist joins both the Institutionalist critic by highlighting the institutional context of choice, and the Post-Keynesian critic by recognizing that the market order can break down (though of course the blame for the coordination failure is usually placed elsewhere) and the thorny theoretical problems that result from treating time and ignorance seriously. Thorough-going subjectivism demands a major restructuring of economic theory and the research purpose of the discipline. In addition to a renewed appreciation of the nature of choice, the importance of the context of choice, including the political/legal/cultural infrastructure of society, comes to occupy a central stage in the discipline within the subjectivist research programme. There can be little doubt that Buchanan has been among the most important figures in resurrecting a broader notion of political economy within the modern discipline of economics, and (though it is not always recognized by his peers) that this conception of the discipline of economics is grounded in Buchanan's appreciation of the subjective nature of choice and the implications for social order that result from that recognition. In other words, subjectivism is not some passing fascination in Buchanan's intellectual career, but the foundation of his thought. His conception of the nature of economics and the purpose of the discipline of political economy is inconceivable without understanding his fundamental commitment to the subjectivist research programme as historically reflected in the works of Frank Knight, Philip Wicksteed, the Austrians (including the American 'Austrians' of the turn of the century [such as Herbert Davenport] and the recent resurgence generation [such as Israel Kirzner]), and the London School of Economics tradition of the 1930s.

 

ECONOMICS, SOCIAL PHILOSOPHY AND CONSTITUTIONAL POLITICAL ECONOMY

Positivism and formalism promised to lift economics from its immature past when ethical concerns and the ambiguities of philosophy and natural language clouded the thinking of its leading figures. Submission to empirical reality would compel those with a scientific mind to surrender ideological beliefs, and adherence to the demand of mathematical reasoning would eliminate the ability of theorists to slip in unwarranted assumptions unnoticed. But these promises were false. Empirical reality is complex and must be sifted through a theoretical lens of some sort to even make sense to us as basic "facts of the matter." In addition, mathematical reasoning might be precise but irrelevant. Mathematical modelling ensures syntatic clarity, but it does not guarantee semantic clarity. The model may be logically precise, but lack meaning.

Both the empiricist and formalist aspiration were mis-applied in the study of man. One cannot cast out of scientific court the very things (beliefs, desires, expectations, etc.) that motivate the subject of study without distorting the object of study. To put it another way, while it was true that eliminating anthropomorphism from the physical sciences was a noble cause, eliminating anthropomorphism from the study of man eliminated the very thing that was supposed to be studied.

Buchanan, along with figures such as Hayek, G.L.S. Shackle, Ludwig Lachmann, and Israel Kirzner, fought persistently against the disappearance of man from economic analysis.¹⁰ By insisting that economic process always exist within a political/legal/social context, Buchanan begged economists to focus attention on the rule structure within which individual strategies would manifest themselves. Reform, in fact, he insisted would not come from tinkering with individuals and their strategies, but rather only from changes in the rules of the game. Thus, by introducing the methodological schema of pre- and post-constitutional analysis, Buchanan was able to demonstrate the positive-scientific value of social philosophy for economics. He proposed both a positive analysis of normative issues, and a recognition that we as political economists do engage in normative analysis whether we want to admit it or not.

First, on the positive analysis of normative issues, Buchanan proposed that in engaging in pre-constitutional analysis (the realm of social philosophy) that economic science could be of value on two fronts: (1) the principle of voluntary exchange, and (2) the effect of strategies given rules (post-constitutional analysis) on the social philosophic judgement of the rules themselves. In other words, as a social contractarian political theorist Buchanan proposed that we engage in social philosophical discussion by asking what rules of the game would people voluntarily agree to behind a veil of uncertainty, and then as an economist he proposed that we examine how alternative rules of the game would engender patterns of behavior and the corresponding consequences for the economic game.¹¹ The tacking back and forth between the examination of pre- and post-constitutional choice constitutes the research programme of modern political economy (and the integration of social and moral philosophy with economic science).

In introducing the theoretical construct of the veil of uncertainty, Buchanan was able to highlight the relevance of the Paretian norm for political economy. In the pre-constitutional moment no bargain concerning the rules of the game would be agreed to unless all parties expected to be made better off by adopting the rules in question. Since individuals were uncertain about where they would be situated in the post-constitutional environment, they would not agree to bargains that clearly valued one sub-group over any other, in this manner the rights of the majority would surely be constrained by the interests of the minority. The concern here was (following Wicksell) with balancing the costs of decision externalities in politics with the costs of decision making. If a voting rule was such that a small minority could win, then that minority could impose costs on others and accrue benefits for themselves through the power of the state. On the other hand, to avoid this externality problem one could propose unanimity as the only rule, but unfortunately unanimity entails increased costs associated with decision making. Conceptual unanimity emerged as the decision rule minimizing the costs of political decision making, which again highlighted the relevance of the Paretian principle for understanding political agreement over the rules.¹²

In the post-constitutional environment, players of the political/economic game treat the rules of the game as constraints and devise optimal strategies in response. Rules of the game that promise a "good" life, but generate incentives which lead to strategies that do not lead to patterns of behavior associated with the "good" life are perhaps rules in need of change. Buchanan, for example, has argued that "The great scientific discovery of the eighteenth century, out of which political economy (economics) emerged as an independent academic discipline, embodies the recognition that the complementary values of liberty, prosperity, and peace can be attained" (1991, p. 244). The discovery of classical political economy was that as long as the state provided and maintained the appropriate rules of the game, then individuals could be left free to pursue their own interests, and in doing so they will simultaneously enjoy the values of liberty, prosperity, and peace. The classical liberal vision, however, was never implemented and it failed to capture the imagination of intellectuals for more than a generation or two. Buchanan conjectures that this failure was due to the absence of a theory of justice in the classical liberal vision of political economy. But twentieth century attempts to develop a model of social justice to correct for this so-called weakness have generated failed experiments in socialism and the social democratic welfare state. The failure of socialism and the welfare state can be directly attributed to the incentive incompatibility of the rules of these games with the strategies of the work ethic and personal responsibility, behavior associated with economic prosperity and social cooperation. Or at least this is the type of argument that Buchanan's work would suggest as I understand it. The veracity of this claim is not the issue to be examined here, but rather I want to use it as an example of how Buchanan's work provides a positive analysis of how we choose among rules.

Buchanan's most articulate statement of his political philosophic project can be found in his Limits of Liberty (1975). The subtitle of the book, "Between Anarchy and Leviathan" neatly sums up Buchanan's research purpose. Frustrated with the failure of the classical liberal political philosophy to constrain the growth of government, some free market theorists, notably Murray Rothbard and David Friedman, had suggested in the 1960s and 1970s that the market could provide endogenously the infrastructure that would govern its operation: anarcho-capitalism. In addition, F.A. Hayek's work was increasingly interpreted myopically by the community of classical liberal scholars throughout the 1970s and 1980s as a blanket indictment of rational constructivism of all stripes. I say myopically, because Hayek's thought was much more than just a warning against constructivism (but this is not the place to discuss Hayek's contributions in any detail).¹³ Buchanan shared the frustration of libertarians with the growth of the state in the twentieth century. A large part of the growth of the state had to do with the Romantic vision of politics that had captured the imagination of American liberals. In addition, from a purely technical economic perspective many of the arguments for government intervention were grounded in a poor understanding of economics and an even worse understanding of the nature of political processes. Much of the critique of the market, for example, was generated by those who failed to grasp the basic principles of spontaneous order analysis. But, Buchanan believed that rational analysis and the construction of the appropriate institutions of governance could emerge from the pens of economists and could reform the system in a "desirable" direction.¹⁴ Freedom was to be found in the constitutional contract, not in the absence of government (despite the philosophical attractiveness of anarchism) nor in the submission to the forces of evolution. Anarchism promised de-evolution into Hobbes war or all against all, and evolutionism promised nothing but the elevation of tradition to that of the sacred -- neither offered a constructive path for change in the "here and now".

Buchanan puts forth a modern argument for the fundamental necessity of the state for establishing the governance structures, at the same time that he hoped to delineate the powers of the state.¹⁵ In this respect, just as in The Calculus of Consent, Buchanan was pursuing the Madisonian project of empowering and then constraining government. In The Limits of Liberty, Buchanan distinguished between the "protective state" and the "productive state" (1975, pp. 68-70). The protective state refers to the state as enforcer of agreed to rights that emerged out of the pre-constitutional moment. The state, in this capacity, is external to contracting parties and does not attempt to "produce" anything other than contract enforcement. The productive state, on the other hand, is the state as producer of collective goods. These two roles of the state are conceptually distinct, and the failure to consistently distinguish between these roles leads to confusion, Buchanan argues. The law, for example, is not an object of choice in the post-constitutional moment, whereas the supply and demand of public goods is subjected to a process of collective choice.

With the development of the theory of the rent-seeking society, the productive state had to be further distinguished from what could be termed the redistributive state (see Buchanan, Tollison and Tullock, eds, 1980). The productive state conceptually adds value by coordinating the plans of actors through collective action when they would have been unable to coordinate their actions through individual action. The redistributive state, however, simply transfers value from one party to another through the tool of collective action. The logic of politics, unfortunately, biases the process of collective action in a manner which often transforms the productive state into the redistributive state even against the best intentions of economic and political actors. This is one of the reasons why Buchanan limits his analysis of proposals for reform to the pre-constitutional level -- once the post-constitutional level is reached changing the players will do little to effectuate lasting change. Reform is only possible, in Buchanan's system, at the level of the rules.

Whether one follows Buchanan or not should be irrelevant for our present purposes, the point I want to stress is that by focusing attention on the rules of political economy Buchanan opened up the discourse in economics to once again deal seriously with moral philosophical questions and the tradition of political philosophy. As Amartya Sen has said in distinguishing between Buchanan and other rational choice theorist, "Buchanan is very impressive in terms of the breadth of his interest. In my judgement he has done more than most to introduce ethics, legal political thinking, and indeed social thinking into economics" (1990, p. 263).
 
 

CONCLUSION

As I have attempted to demonstrate, Buchanan has dissented from the mainstream trend in modern economic thinking throughout his career. He was a non-Keynesian when Keynesianism was en vogue; he pursued a subjectivist research programme when the majority of the profession lost sight of the subjectivist roots of the neoclassical revolution; he rejected the formal models of utility maximization and perfect competition when these models represented the tool-kit of any respectable economist; and he reintroduced into economic questions moral philosophical concerns at a time when economists were content to abandon the metaphysical to worship at the shrine of scientism.

When Buchanan won the Nobel Prize in 1986, many rejoiced that an outsider could win the award. Buchanan himself has interpreted the outpouring of support (in the face of the negative popular press reaction) as a symptom of a penchant to root for the underdog. 'If James Buchanan can win, then anyone who works hard and has a seriousness of purpose can win despite their outsider status.' Of course, I am sure there was some of that sentiment underlying the good wishes and hardy congratulations Buchanan received. But, Buchanan's award represented more than that to many people. It represented a recognition by some that economics was too important a discipline to be left to the technicians and ideological eunuchs (two terms that Buchanan has employed to describe modern economists, see, e.g., Buchanan 1986, p. 14). Our discipline in the past fifty years has systematically weeded out of scientific concern precisely those questions which have historically made the discipline worthy of serious scholarly attention.¹⁶ Buchanan, along with Ronald Coase and Douglass North (to name two additional recent receipts), pursued a research program more akin to their classical predecessors than the modern math jock inspired by Paul Samuelson or Robert Lucas. For those of us who see economics as a vital part of a broader interdisciplinary search for truth about man and the social organization of exchange and production, any nod in the direction of these heterodox thinkers is interpreted as sign that the economics profession may be regaining its "collective sanity".¹⁷

Of course, our hopes are often dashed within minutes -- as soon as we discuss the awarding of the prize with our colleagues or graduate students who wonder where the lemma lies in the work of a Buchanan, Coase or North.¹⁸ But the hope remains that scholars within economics will realize that this discipline possess a cultural heritage and social capital that has been eroded by the blind quest for scientistic precision. As Kenneth Boulding stated in review Paul Samuelson's Foundations so many years ago, "Conventions of generality and mathematical elegance may be just as much barriers to the attainment and diffusion of knowledge as may contentment with particularity and literary vagueness.... It may well be that the slovenly and literary borderland between economics and sociology will be the most fruitful building ground during the years to come and that mathematical economics will remain too flawless in its perfection to be very fruitful" (1948, p. 247).

Boulding's words are even more telling today than they were then as we have seen the fruits of the formalist revolution in economic theory and how it has cut economics off from the social theoretic discourse on the human condition. Buchanan was one of the few who, despite his deep commitment to the logic of economic argumentation, resisted the formalist revolution and strove to fit modern economics into the classical political economy project. One can disagree with this or that aspect of the Buchanan project, but the scholarly enterprise he pursued demands our respect and admiration and (I would suggest) most definitely our emulation.

I would like to thank James Buchanan, Jack High, Israel Kirzner, Mario Rizzo and Karen Vaughn for their comments on an earlier draft of this paper. In addition, I would especially like to thank Steven Pressman for his comments and suggestions for improvement. Financial assistance from the Austrian Economics Program at New York University is gratefully acknowledged. Responsibility for remaining errors is my own.

ENDNOTES

1. My definition of a dissenter in economic science, and thus, outsider, will be one who resists the dominant trend in contemporary thought in the following way: (1) they eschew mathematical modelling and econometric testing, and thus the basic language and tool-kit of contemporary scientific economics; (2) they articulate a philosophical case against modern economics; and (3) they reject the professional strictures against normative theorizing and see policy relevance as a virtue of a theoretical development in economics. In addition, I would add that the effective dissenter has to sociologically fit Kuhn's "divergent thinker", i.e., one firmly rooted in the contemporary scientific tradition who in fact has for a time adopted a "convergent thinking" approach to science. Thus, the successful scientist displays both the characteristics of a traditionalist and that of a iconoclast. See Kuhn (1959).
2. See Cushman (1994) for a discussion of the Virginia episode and the rise of rational choice political science and the reaction it has generated. Also see Green and Shapiro (1994) for a critique of rational choice political science. The Green and Shapiro book was the motivation behind Cushman revisiting the Virginia episode.
3. Overviews of Buchanan's contributions to economics science can be found in Atkinson (1987), Boettke (1987), Romer (1988) and Sandmo (1990). For an overview of the "new" political economy in general see Mueller (1989) and Inman (1987). A very useful general introduction to public choice and its social philosophical and public policy implications is the recently published Beyond Politics written by Mitchell and Simmons (1994).
4. Buchanan is probably best known for his joint work with Gordon Tullock, in particular their classic, The Calculus of Consent (1962). I will not discuss The Calculus as a separate work here. Tullock's influence, however, must be recognized in any assessment of Buchanan. In fact, Tullock deserves his own entry as dissenter. His own brand of economic imperialism and irreverence has yielded innumerable insights. the tension between Buchanan's philosophical perspective and Tullock's economistic one led to a very productive collaboration.
5. This contribution, of course, has not been consistently recognized by his peers in the academic economic establishment who worship the god of formalism. But, Buchanan's methodological statements throughout his career have warned about the costs of formalism for economic understanding, and they provide inspiration to those working outside the current formalistic fashions that real progress can be made in economic thought by persistently pursuing the elementary principles of the discipline. It would seem that one formalistic principle, that of Occum's Razor, actually would side with the anti-formalist. "Economic minimalism" (that is simple elementary economic models) should be valued over complicated models if the minimalist model can explain the phenomena under question in just as good, let alone better, manner. The burden of proof should really be on the modern technician, and this is why Buchanan's query about Smith is so important.
6. In a most ironic twist, it so happens that Kenneth Arrow's work on market failure theory, e.g., the medical market, came after his work on the voting paradox. Thus, he of all scholars should have been aware of the difficulties in the political provision of goods in the wake of market failure. Instead, as Harold Demsetz forcefully demonstrated, Arrow committed the "nirvana fallacy" in his analysis of market failure.
7. Amartya Sen has recently attempted to address Buchanan's critique of the social choice literature, see Sen (1995).
8. Steve Pressman has pointed out to me that Abba Lerner's theory of functional finance argued against the idea that governments had to balance their budgets on a cyclical basis. Instead, Lerner's idea was that governments could run deficits indefinitely as long as citizens were willing to lend the government money. This aspect of the doctrine did not become part of the Keynesian orthodoxy as reflected in the thought of Samuelson, Solow, Tobin and Klein -- who instead argued for the cyclical balancing of the budget. Thus, Pressman suggests that while Buchanan's criticisms about the lack of a political model may be applicable to both Lernaer and the mainstream Keynesians, his concern with the intergenerational transfer of the burden of debt is applicable to both Lerner and not to the mainstream Keynesian position. But implicit in the Buchanan critique, is the idea that the mainstream idea of balancing the budget over the business cycle collapses into the Lerner position of indefinite deficits precisely because of the absence of an explicit model of political behavior.
9. Karen Vaughn has pointed out the dilemma involved in this situation. In order to calculate the appropriate corrective tax, the policy maker must presuppose knowledge of the equilibrium price (where price equals marginal cost, thus assuring that the full opportunity costs of production are taken into account), yet they very situation that demands the correction implies a disequilibrium situation. See Vaughn (1980).
10. In the classroom, for example, one of the most challenging and interesting questions asked of students was to write about the basic question: "Who is the individual in economics?" Buchanan's teaching method (at least by the time I had him as a formal instructor in the mid-1980s) was to assign no text, but to put on reserve about a dozen books that were to be read throughout the semester, and to grade students based on a series of short papers due about every two weeks throughout the semester. In one class I had with him, the entire semesters writing assignments revolved around varied manipulations of Adam Smith's deer-beaver model. Ironically, during that semester I also had the privilege of studying Great Book in Political Economy with Kenneth Boulding, who also spent most of the semester discussing Smith's basic model. I asked Boulding about this one afternoon, and he explained to me that Frank Knight (both Buchanan's and Boulding's teacher at University of Chicago) spent his classes either discussing world religion or Adam Smith's deer-beaver model, so I shouldn't fret as I was simply being espoused to a long line of teaching methodology.
11. The veil of uncertainty was introduced in The Calculus of Consent (1962) before the construction of the veil of ignorance that was made famous by the work of John Rawls. Buchanan and Tullock examined what sort of political decision making system would emerge from a constitutional convention when the individual participants in the convention were uncertain about their relative positions in the post-constitutional world.
12. This, of course, raises the questions of the position of the status quo in politics. In times when political stability is desired the institutions of governance need to be status quo breaking. However, when political stability is desired the institutions of governance need to be status quo preserving. Status quo breaking or status quo preserving are mutually exclusive properties of political institutions of governance. Hot all forms of democratic governance are equal with regard to the position of the status quo, nor are the forms of democratic governance neutral with regard to economic prosperity. this is a major theoretical puzzle in both the emerging market economies in East, Central Europe and the former Soviet Union as well as throughout the developing world: what form of political infrastructure provides the background to simultaneously achieve economic prosperity and political freedom.
13. It is the myopic reading of Hayek's critique of rational constructivism that moves Buchanan into opposition with Hayek. "My basic criticism of F.A. Hayek's profound interpretation of modern history and his diagnoses for improvement," Buchanan states, "is directed at his apparent belief or faith that social evolution will, in fact, insure that survival of efficient institutional forms. Hayek is so distrustful of man's explicit attempts at reforming institutions that he accepts uncritically the evolutionary alternative. We may share much of Hayek's skepticism about social and institutional reform, however, without elevating the evolutionary process to an ideal role. Reform may, indeed, be difficult, but this is no argument that its alternative is ideal" (buchanan 1975, p. 194, n.1). I do not mean to imply that Hayek denied reason a role in social affairs. No. The operative phrase in Hayek's program is "Of Human Action, But Not of Human Design" which entails studying the systematic order of a market economy as the outcome of the individual choices of actors even though that order was not their intention. Hayek's project was the Scottish Enlightenment Project which was, to paraphrase Hume, to use reason to whittle down the claims of Reason. For a discussion of the complementarity of the research projects of Hayek and Buchanan see Vanberg (1987).
14. Though I should point out immediately that Buchanan never considered himself (or economics per se) as a savior. In fact, the economists as savior is to Buchanan the highest form of moral conceit. See, for example, the quote from Frank Knight that Buchanan reproduces in his chapter on constitutional revolution in The Limits of Liberty (1975, p. 166).
15. This issue is also discussed in Kirzner (1994). In that paper Kirzner argues that the efficiency properties of the market can only be stated given an institutional environment of property and contract. The market cannot generate its own rules of the game, but rather must be embedded in a rules framework. Outside of the appropriate framework and there are no guarantees that the market will work in any reasonable efficient manner.
16. Leading Buchanan to make the statement that "Our job in the 1980s is therefore less of ideological displacement and more one on methodological revolution in our parent discipline of economics itself. We find ourselves in the bizarre position where those of us who seek to define our central research programme as it was defined for the first century and one-half of our discipline's history are now the methodological revolutionaries" (1986, p. 15).
17. Please excuse the obvious violation of methodological individualism implied in this sentence.
18. The Coase Theorem, for example, is quickly converted to the Coase conjecture.

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