A Creative Theorist in His Workshop:
James M. Buchanan as a Positive Economist
William F. Shughart II and Robert D. Tollison
School of Business Administration
University of Mississippi
University, MS 38677
I. Introduction
As one of our friends once said, James M. Buchanan is a whole university in and of himself, or at least an economics department, a philosophy department, and a political science department combined in one person. Another way of putting this is to recognize that Buchanan has contributed to numerous literatures inside and outside of economics so that characterizing his work or his methodological approach in general terms can be a little difficult at times. Depending on the time and the particular issue he is pursuing, Buchanan appears here and there in a variety of methodological modes. It is fair to say, however, that in the main Buchanan has worked as a normative economist C he has tried to use economic theory to increase the understanding of complex behavioral interactions, so as to enhance general agreement on mutually beneficial social arrangements. He is not a welfare economist or a utilitarian in the sense that he offers any prospects of ascertaining what is Abest@ for everyone, distinct from their own evaluations. Rather, he is a contractarian who seeks to find the ways and means by which people might cooperatively better themselves. This, at least, is the aspect of his work that Buchanan emphasizes, and that other scholars have stressed as well.
This understanding of Buchanan, however, misses an important aspect of his work. Buchanan has made numerous contributions to positive economics over his career, which could easily be overlooked in the rush to interpret Buchanan as being primarily normative in research purpose. This essay seeks to redress this imbalance with a survey of his contributions to positive economics.
II. The Link between Positive and Normative Economics In Buchanan=s Work.
A prefatory word is in order about positive economics. Properly understood, positive economics ultimately involves the derivation of testable hypotheses about behavior, often preceded by careful elaboration of the logical consequences of initial postulates. There is no imperative that the positive economist actually test his theories. It is the insight that counts; the actual testing may or may not be left to others. Indeed, not all positive statements can be tested economically. Be that as it may, Buchanan is clearly not an empirical researcher. He has, in fact, been disdainful of econometric and empirical research on occasions. He has, nonetheless, made important contributions to positive economics which have increased our understanding of how the world works, and it is these contributions which are considered here.
It is often argued that positive statements are nothing more than thinly veiled normative arguments. This may or may not be the case, but accepting the point for the sake of argument, the converse would seem to be equally relevant C normative statements are nothing more than thinly veiled positive arguments. The analyst who says that the Congress should repeal the minimum wage law is also saying that the minimum wage law is the cause of teenage unemployment or, alternatively, that there are less costly ways of achieving given ends. Hopefully, this is not a conjuring trick, where, like Alice, up is down and down is up. Good normative theorists base their reasoning on good positive theories. In such a way, at least, we can derive the positive economics of Buchanan, from both his normative and positive contributions to the literature.
The approach taken will be to list, as succinctly as possible, the key testable propositions which can be found in Buchanan=s work. Sometimes, this will amount to a simple declarative sentence with appropriate citations. The reader may consult the source of the propositions as their interests dictate. We will generally cite to a single source of an idea, and not to all incidences of the idea=s occurrence in Buchanan=s work. And, we may not have found the original source of the idea but only a particularly clear exposition of it. Nonetheless, if we have done our job well, we expect that readers familiar with Buchanan=s writings will pretty quickly recall the broader argument evoked by our brief summaries and, if interested, will be able to trace the lineage of the idea in Buchanan=s writings.
Finally, the list will stick to Buchanan=s original hypotheses to the extent possible. His repetition of standard economic ideas is obviously not to the point. Buchanan did not discover the law of demand, although a graduate student at the University of Virginia once tried to pass the Micro Prelim by attributing the law of demand to Buchanan and the law of supply to Warren Nutter, a fellow professor with Buchanan at Virginia.
III. Buchanan=s Positive Hypotheses
1. The Samaritan=s Dilemma: Recipients of charity can exploit the dominance feature of donors= utility payoff matrices (Buchanan 1975b).
2. Academia: If you put the faculty in charge of the university, low-opportunity cost
faculty will come to dominate university decision making, driving out the good scholars and lowering the productivity of the university; as a point of reference, one could examine the scholarly output of members of the faculty senate relative to non-member faculty in her present university (Buchanan and Devletoglou 1970).
3. Deficit Finance: If you lower the cost of taxing future citizens, they will be taxed at a greater rate (Buchanan 1958).
4. Keynesian Economics: Given a choice, politicians will vote for lower taxes and increased spending; the Keynesian Abalance wheel@ is loaded on the side of deficits; one of Keynes=s legacies is modern deficits (Buchanan 1987a).
5. Tax Collection: Governments will collect as much tax revenues as feasible, given the
constraints imposed upon them; Leviathan lives C the era of big government is not over (Brennan and Buchanan 1980).
6. Political Economy: The only test of right or wrong is uncoerced agreement among participating parties; there is no one Aright@ policy independent of individuals= evaluations (Buchanan 1959).
7. Clubs: Many Apublic goods@ are produced efficiently by private, cooperative
arrangements; private supply of public goods is feasible in certain cases (Buchanan 1965a).
8. Voters: The individual=s decision to vote in the ballot box differs from market choices because of the absence of the choice-consequence nexus (Buchanan 1954).
9. Institutional Analysis: The relevant comparison is between realized and not idealized
institutional alternatives; government is not a free lunch (Buchanan 1962a).
10. Fiscal Federalism: Fiscal mobility of individuals and capital embodies certain potential social costs; Acities@ do not function like private clubs because certain property rights are undefined (Buchanan and Goetz 1972).
11. Expressive Voting: Voters may be more virtuous in a 1/N setting by virtue of the first law of demand (Brennan and Buchanan 1984).
12. Ricardian Equivalence: Uncertainty over future tax liabilities leads people to prefer debt to
taxes (Buchanan 1976a).
13. Work Ethic: Individuals have an economic self-interest in the ethics of others; the work ethic (as well as a saving ethic) promotes generalized increasing returns (Buchanan 1994a).
14. Public Choice: Man does not alter his basic behavior as between market and non- market settings; only the constraints are different (Buchanan 1979a).
15. Monetary Policy: Monetary rules and greater predictability of monetary policy are associated with a more prosperous economy (Buchanan 1962b).
16. Government Failure: Government is not a perfect instrument for correcting market
failures (Buchanan 1962a).
17. Rent Seeking: The pursuit of transfers takes place in both public and private settings
(e.g., the rat race); primogeniture will reduce rent seeking in families (Buchanan 1983).
18. Reform: We start from where we are (Buchanan 1962a).
19. Anarchy: The study of a world without government teaches us about the rational basis for steps to civil society and the consequences of a breakdown in social order (Buchanan 1972).
20. Tax Reform: AReform@ begats reform, as the tax code is auctioned off every so many years; rent seeking is a dynamic game (Buchanan 1987b).
21. Ethical Norms: Many ethical norms are the result of a long ago cost-benefit calculus suggesting the gains from trade from ethical behavior; ethics have economic value; ethics are a relatively absolute absolute (Buchanan 1965b).
22. Justice: Justice is fairness (Buchanan 1976b).
23. Secession: The ability to opt out produces fiscal benefits in a federal system; if at first you do not secede, try, try again (Buchanan and Faith 1987).
24. Monopoly: In some cases (crime, for instance) monopoly (e.g., the Mafia) produces social benefits (in a second-best sense) (Buchanan 1973).
25. Literature: The autobiographies of scientists are more truthful than those of novelists (Buchanan and Tollison 1986).
26. Economists: There are examples of Anatural@ economists, for example, Gordon Tullock (Buchanan 1987a).
27. Environmental Regulation: Interest groups prefer command and control regulation to emission fees, tradable pollution permits, and taxes (Buchanan and Tullock 1975).
28. Tax Earmarking: Tax earmarking produces fiscal outcomes superior to general fund
budgeting; why should we buy public goods in fixed bundles (Buchanan 1963)?
29. Indirect Taxation: In a multiple period model of individual choice, there are
conditions under which indirect is preferred to direct taxation (Buchanan 1966).
30. Generality Constraints: In majoritarian democracy, general rules that apply to all citizens inhibit majority cycling and rent seeking (Buchanan and Congleton 1998).
31. In-Kind Redistribution: There is an individualistic rationale for redistributing specific
goods and services rather than general purchasing power (Buchanan 1968b).
32. Public Goods: The demand for public goods has a negative slope (Buchanan 1966).
33. Social Security: Employers do not Apay@ the payroll tax (Buchanan 1990).
34. Fiscal Illusion: Politicians have an incentive to obscure the costs of government programs and to highlight the benefits of the same programs (Buchanan 1966).
35. Fiscal Awareness: Individuals are not very aware of how much they pay in taxes (Buchanan 1966).
36. Ethics and Economics: Ethical behavior is muted by individual incentives in a large numbers setting; ethical behavior is subject to the first law of demand (Buchanan 1965b).
37. Majority Rule: Though widely used, this voting procedure does not have much to recommend it; combined, for example, with geographic representation, it leads to inefficient public policies (Buchanan and Tullock 1962).
38. Relative Unanimity: More inclusive voting rules increase collective decision costs but enhance the efficiency of collective decisions (Buchanan and Tullock 1962).
39. Unanimity: Unanimous agreement is the only voting rule consistent with discerning underlying increases in economic welfare (Buchanan 1962a).
40. Logrolling: Vote trading is analogous to private exchange in some respects in that it can enhance the productivity and stability of collective decision making under specified circumstances (Buchanan and Tullock 1962).
41. Constitutional Economics: The rules for in-period political exchange are a key source of the capital stock of any society; societies with better rules are more productive (Buchanan 1986).
42. Public Goods: In a small numbers setting, public goods will be provided efficiently on a voluntary exchange basis among individuals; in a large numbers setting individuals will pursue the potential gains from trade by selecting rules and institutions for the provision of public goods (Buchanan 1968a).
43. Profit Seeking: Profit seeking in competitive markets is not analogous to rent seeking; profit seeking creates value; rent seeking destroys value (Buchanan 1980).
44. Entrepreneurs: Entrepreneurs have positive and negative effects depending upon the institutional setting in which entrepreneurship is practiced (profit seeking versus rent seeking) (Buchanan 1980).
45. Socialism: An economic system which separates consumption from production will not survive (Buchanan 1997).
46. Democracy: This word must be preceded by Aconstitutional@ if political equality is to be meaningful; democracy is not majoritorianism or mob rule (Buchanan 1997).
47. Bureaucracy: Bureaucracy is a system of political pricing that makes decisions based on criteria other than economic value (Buchanan 1994b).
48. Exit: The absence of an exit option in political processes blocks an important feedback loop to public decision makers (Buchanan and Faith 1987).
49. Science: Politics, unlike science, is not a search for truth; politics is about agreement (Buchanan 1967).
50. Market Orders: Outcomes emerge in ordinary markets from the process of individual choice; the end-state or allocative result has no meaning independent of individual choices (Buchanan 1982).
51. Valuation of Government Goods: If goods are given away freely, individuals will dissipate their value by over-usage (Buchanan 1968a).
52. Quantity Discounts: Monopolists secure more profit by introducing discounts on large purchases (Buchanan 1952-53).
53. Endogeneous Alternatives for Voting Choices: The alternatives presented for collective voting choices jointly depend on the voting rule (Buchanan and Tullock 1962).
54. Heterogeneous Inputs: In the presence of heterogeneous inputs a competitive input purchaser will behave like a perfectly discriminating monopsonist in purchasing bundles of heterogeneous inputs (Buchanan and Tollison 1981).
55. Relatively Absolute Absolutes: Something must be taken as given for purposes of analysis; there is a choice among choices and then choice itself (Buchanan 1989).
56. Economics: Economics is not about allocating scarce resources; it is about choice; it is also better than plowing (Buchanan 1979b).
57. The Welfare State: If the recipients of income transfers are allowed to participate in the collective decision concerning the size of the transfer, self-interested voting will bias transfers upward (Buchanan 1975a).
58. Public Finance: Fiscal policy outcomes can only be understood in the context of the budget as a whole; taxing and spending policies both have distributional consequences (Buchanan 1949).
59. Judges: Good law is the enforcement of agreed upon rules; social justice and law and economics are both about mutual consent (Buchanan 1974).
IV. The Economist As Preacher
George Stigler (1981) has argued that Apreaching@ by economists has had only limited influence on society and its decision makers. And by preaching, he simply means attempts to recommend the adoption of certain public policies or the practice of normative economics, e.g., suggestions that Congress should repeal the minimum wage law. When economists tell government things which clash with the preferences of underlying interest groups, it is true that such advice is usually ignored. Nonetheless, economics can (and has) serve(d) to elucidate both the positive economics and the social costs of public policies so as to in some sense make the transfers that prop up Ainefficient@ policies more naked to the natural eye. And, who knows, this baring of political motives may have played a significant role in economic reform, e.g., the military draft, deregulation, privatization, the fall of the planned economies , and so on. In truth, it is all but impossible to Atest@ Stigler=s hypothesis.
The point about Buchanan and preaching is two-fold. First, Buchanan stresses agreement as the only means of evaluating the goodness or badness of a policy. Agreement is often facilitated by discussion and consideration of alternatives. In this sense the preaching of economists is merely participation in the marketplace of ideas. Buchanan sees this participation as both a right and an obligation, where his role is to convince others of the correctness of his views. The idea is not to impose views but to sharpen the alternatives and foster general agreement. This is the practice of positive political economy.
Second, and more related to this essay, is the point that positive economics plays a key role in Buchanan=s political economy. If the minimum wage causes teenage unemployment, then this is a critical part of the discussion. Exposing the social costs of government transfer schemes may sway disinterested observers to see the policy for what it is, namely, a transfer of wealth to organized labor.
At a deeper level Buchanan wants to promote a dialogue about the rules of the game. Here, he also seeks agreement as the test of correctness, and he stresses the potential importance of the selection of rules to govern in-period politics. Preaching matters here because we are discussing permanent, long-term ideas for the operation of productive, healthy, and fair societies. Surely, the social marginal product of good ideas in this area is quite high because such ideas are quite scarce (as opposed to bad ideas). To wit, the scarcest commodities in this world are love and cooperation, and it is our task as economists to see to it that their use is husbanded carefully by the appropriate institutional arrangements (Robertson 1956).
V. Concluding Remarks
This essay stresses some of Buchanan=s creative contributions to positive economics over the course of his career to date. But the message is broader than this. If agreement is the proper test, as it is in Buchanan, then his life=s work can actually be seen as an exercise in positive political economy. At no juncture does he use his bully pulpit to tell people what to do. He makes proposals and suggests that if people thought about it, they would agree. This discussion and participation in the social dialogue is positive political economy at work.
Finally, we think the range and depth of the above list speaks for itself. Yet it is probably also incomplete. If the reader feels so moved and thinks that we have missed an important positive proposition in Buchanan=s work, please feel free to let us know. To conclude, ask yourself the following question: would you find as rich and as varied a menu of ideas by going through the same exercise with other modern economists?
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