Emilio Giardina, University of Catania, Faculty of Economics, Dean and professor of Public Finance

INTRODUCTORY SPEECH BY PROF. EMILIO GIARDINA, DEAN OF THE FACULTY OF ECONOMICS OF THE UNIVERSITY OF CATANIA, FOR THE CEREMONY FOR THE AWARD OF THE LAUREA HONORIS CAUSA TO PROFESSOR JAMES M. BUCHANAN

It is my honour today to introduce a renowned laureate, and to give the reasons why the Faculty of Economics of the University of Catania has decided to confer the laurea honoris causa on James Buchanan. You will forgive me if, in doing so, I will not be able to hide emotion and affection. These feelings are quite understandable if you think of our personal and scientific relations. They go back to more than thirty years ago, in 1963, at the University of Virginia, where he was heading the prestigious Thomas Jefferson Center for Studies in Political Economy, and where I was so lucky to complete my training in economics. My training as a public economist and my subsequent academic career have been deeply marked by this experience of life and study. James Buchanan’s scientific and human personality have helped forge my own personality to a great extent. This is true of other three colleagues of this University, Rino Battiato, Salvo Creaco and Fortunato Calleri, who have spent long and fruitful periods of study with him. As a matter of fact, several public economists from Catania were trained following his teaching.

James M. Buchanan, Jim for his friends, was born in the County of Rutherford, in the middle Tennessee, from a family of farmers, who had among its members a Governor of that State, his grandfather. He grew up in a rural community in the South, far from the Establishment, which has always fostered the ruling class and the academia of the country. He attended the middle and high school, and the University in this community, and after the end of the war, which he served in the US Marine, he went to the University of Chicago for his PhD.

Even if he was professionally considered as an economist, he has often said that, at that time, he did not regard himself as such. He became an economist thanks to Frank Knight, his teacher in that University, who taught him the nature and the meaning of the market system, viewed as a co-ordinating mechanism of individual choices, in contrast with other points of view, even the liberalist ones. However, the main acquisition from Knight’s teaching was an attitude for the critical analysis, that is, to use his own words, "the willingness to question anything, and anybody, on any subject anytime; the categorical refusal to accept anything as sacred; the genuine openness to all ideas; and, finally, the basic conviction that most ideas peddled about are nonsense or worse when examined critically".

Knight was also his guide in a strictly pedagogic way: he was very good at bringing out and stimulating young students’ analytical and reasoning abilities, and to encourage those pursuing scientific research. In this attitude, Buchanan has surely surpassed his teacher, as I do not know any other scholar who has set up such a large school as his. From this point of view, it is interesting to note the differences between Knight and other professors in Chicago, like Milton Friedman, who used to overwhelm their student with their powerful intellect, making them to believe that their ideas should be discarded.

The second pillar in the intellectual training of Buchanan was the work of Knut Wicksell, the great Swedish economist and socialist politician, who lived in between the two centuries. Buchanan got from him the idea that efficiency in the public sector has to be defined according to the unanimity rule. He also inherited from him the idea that economic reforms have to be related to political rules, and that the economist’s role is not that of advising politicians, regarded as benevolent dictators. These ideas were crucial for his founding of the New Political Economy or Constitutional Economics, as it was then called.

If the teachings of Knight and Wicksell were the two pillars of Buchanan’s work, the keystone was the Italian public finance tradition. It was through de Viti de Marco’s Principi di economia finanziaria, also available in English at the time, and during a long period of study in Italy as Fulbright fellow, that Buchanan came to know the Italian tradition. The deep insight into the works of the Italian scholars – Pareto, Pantaleoni, Einaudi, Puviani, Mazzola, Conigliani, Montemartini, Griziotti, Fasiani and many others – contributed to the development of the idea of the relevance of the relation between the positive and normative theory of public economics and the political structure. The notion that the State is a unitary, omniscient and benevolent entity, widespread in the Anglo-Saxon world, was foreign to the Italian tradition, which linked the public sector decisions to the nature of the existing political structure. It is quite interesting that Buchanan’s first book, Public Principles of Public Debt, drew on a largely debated idea in Italy, that the public debt puts a burden on future generations.

After this brief discussion on the intellectual influences on Buchanan’s work, let us now consider his main contributions to the economic science. I will start with those related to the theory of economic behaviour. One of his propositions, put forward in an early work, and reaffirmed along his entire working life, is that the individual is always the same, both in the market and in the political arena, and, therefore, in his decisions as consumer, producer, worker, but also voter, politician, bureaucrat. If differences arise in his behaviour, these are not related to differences in his motivations, but are caused by differences in the institutions, and therefore in the incentives which drive human actions in different contexts.

It follows that political decisions, including those of economic policy, can be explained according to the same principles and methodologies developed within economics throughout its history. This approach does not imply, at it is often misunderstood, an economic ‘monster’ seeking only an egoistic satisfaction, but merely that the economic interest, even though associated with altruistic and social interests, counts in the market as well as in the political arena. The school of Public Choice originates from this approach and aims at analysing the public sector economics and its interactions according to this new paradigm.

A second important contribution derives from the first and concerns the welfare theory and the concept of efficiency. Economists were bewildered at the beginning of the fifties by the impossibility theorem of Kenneth Arrow, who won the Nobel Prize in Economics for his studies on the subject. Briefly, the theorem says that there is no social ordering of individual preferences which is compatible with some basic rules. Buchanan has always argued that this approach is inappropriate in a democratic society that has no particular aims other than those resulting from its rules. Therefore, the concept of welfare cannot be referred to that society because of the absence of a unitary collective actor. He finds the weakness of this paradigm in the conjecture depicting the market and the political order as instruments of optimisation. For he considers them as instruments to coordinate individual choices, whose efficiency has to be evaluated not according to the results obtained but to the correspondence with the adopted procedures.

The emphasis given in his work to the procedures and rules, namely to the constitutional order, represents another important contribution to social sciences. In his opinion, exchange and agreement characterise both market and political choices. However, in the political arena the agreement concerns common objectives, and therefore needs the consent of all the participants, which amounts to the unanimity rule. Moreover, the application of this rule in normal, everyday political decisions implies relevant transaction costs that write off the advantages. That explains why we normally resort to a simple or qualified majority rule that has lower transaction costs.

However, at a constitutional level, when we have to select the rules for everyday decisions, and the view of future interests is hindered by the "veil of ignorance", the unanimity rule regains its whole relevance and represents the fulcrum of the decision-making process. Buchanan presents his constitutional approach in the Calculus of Consent, written in 1962 together with Gordon Tullock. Later he develops that approach in a number of important publications, which constitute the foundations of a new disciplinary branch, the Constitutional Economics.

Among his very many contributions to the economic science, I would like to remember those to Public Finance and the Economics of the public sector. An important corollary, deriving from the Public Choice approach, is that concerning the correct definition of the role of the State. Not only the market, but also the system of public intervention is affected by imperfections, debacles and failures. The idea, often assumed in several approaches, that the public agent is perfectly informed and benevolent is unacceptable. Therefore, in order to establish the advantages of public intervention with respect to the market solution, it is not sufficient to point to the imperfections of the latter but we need also to compare the different alternatives. This methodological principle has been applied by Buchanan to the solution of several economic problems: the public intervention for correcting externalities, the growth of public expenditure, the role of bureaucracy, the exploitation of political rents, the public debt.

One of his recent books, Better than Plowing, may induce the reader to think that he considers preferable, or less fatiguing, the profession of economist as compared to that of a farmer. But it is not so. This is a judgement of value and not a factual judgement. The quotation is from Frank Knight and refers to the creativity of the intellectual who can, in an original way, modify the world of ideas in the way specified by Popper. Buchanan possesses that creative ability, and we are happy that he did not decide to choose the plow. He is considered as one of the most influential economists of our times. His work has made an impact on the work of many economists. It has forced us to think about the foundations and role of the discipline. Even those who do not share totally or partially the same view have changed the perspectives of their studies. The history of the economic science after Buchanan is different from what it would have been otherwise. Moreover, his influence is not limited to economics, but extends also to scholars of social philosophy and political science, who have been directly inspired by his work. Then, in his case we can certainly say: "better than plowing".

Several Universities, in the United States, United Kingdom, Switzerland, Germany, Spain, Portugal, Romania, Italy have awarded the laurea honoris causa to professor Buchanan. He has received many prizes and awards and, above all, the Nobel Prize in Economic Science in 1986, for the analysis of the contractual and constitutional fundamentals of the theory of economic and political choice. The Faculty of Economics of the University of Catania, for the above mentioned scientific merits, but also, if you allow me, for the long established relationship that links several professors in Catania to him, has decided to award the laurea honoris causa in Economics and Business to Professor Buchanan.