Political Economy Obituaries: James Buchanan

Jun 11 '13

For the past two years, we have featured a collaboration with the newsletter of the APSA Organized Section on Political Economy. This week we will feature the last contribution from the current editorial team of “Scott Gehlbach”:http://users.polisci.wisc.edu/gehlbach/ and “Lisa L. Martin”:https://mywebspace.wisc.edu/llmartin3. Their words are below, followed by the first contribution from “John Nye”:http://economics.gmu.edu/people/jnye of George Mason University.


In this last issue of the Political Economist under our editorship, we pay tribute to four recently deceased giants of political economy: James Buchanan, Albert Hirschman, William Niskanen, and Elinor Ostrom. The Monkey Cage has generously offered to publish each of our four tributes. In the first of four posts, “John Nye”:http://economics.gmu.edu/people/jnye at George Mason investigates the contributions of James Buchanan to positive and normative political theory.

“Bill Clark”:http://www.lsa.umich.edu/polisci/people/ci.clarkwilliam_ci.detail at Michigan takes over as editor of the Political Economist with the next issue. APSA members should consider joining the Political Economy Section so that they have full access to future issues of the PE. Current members can download the Summer 2013 issue at this “link”:http://community.apsanet.org/ViewDiscussions/ViewAttachment/?DocumentKey=99251f67-1a61-49e6-a99e-b836c29e2a42&MessageKey=989c5c5b-3c9d-4924-a753-41a384d1ca4e&MDATE=%3a47%3e47568&UserKey=b8321d69-40ff-47ae-839a-de5912d3984f&sKey=2EFCAB84B51644B48DDB, where in addition to the four tributes they will find an important essay by “John Huber”:http://www.columbia.edu/~jdh39/Site/Home.html on the importance of not forgetting about theory as the “identification revolution” changes the way that political economists do empirical work.

“Scott Gehlbach”:http://users.polisci.wisc.edu/gehlbach/
“Lisa L. Martin”:https://mywebspace.wisc.edu/llmartin3


James Buchanan: Worldly Philosopher and Constitutional Idealist

By the time James Buchanan passed away on January 9, 2013, the economic analysis of politics had attained a prominent, even central place, in both economics and political science. That these approaches have gone from being mostly neglected half a century ago, to becoming a major preoccupation of leading scholars throughout the world today, was in no small part due to the pioneering work of Buchanan himself, both alone and in joint work with various collaborators, most notably Gordon Tullock.

Buchanan, who received the 1986 Nobel Memorial Prize in Economic Sciences, spent most of his career at three institutions: first at the University of Virginia, where he founded the Thomas Jefferson Center for Studies in Political Economy; then at Virginia Polytechnic Institute, where he founded the Center for Study of Public Choice; and finally at George Mason University, to which he moved the Center in 1983.

Buchanan made fundamental contributions to both positive and normative political economy.

His most influential work came from attacking the view of the state as a benevolent despot and substituting instead the principle that political actors should be modeled as favoring their private interests in much the same way that we model private economic agents. This idea was most influential in the research now known as public choice, but also in his work on the theory of clubs, and in his challenges to the neoclassical/Pigouvian approach to externalities.

The pioneering work in this area was of course, The Calculus of Consent (1962), his magnum opus jointly written with Gordon Tullock. Arguing first for the use of methodological individualism in the analysis of political actors, the authors then contrasted the costs and benefits of various majority voting systems vs. a unanimity rule. The unanimity rule best preserved the public interest but came at the expense of extremely high decision-making costs. In contrast, all other (majority voting) systems suffered from a mix of decision-making costs and various inconsistencies that led to externalities or deviations from the public interest. It was also a pioneering work in the use of game theoretic concepts and in its blend of economic reasoning with politics. Though TCOC has sometimes been challenged as caricaturing human motivation, most modern formal analysis of political behavior essentially starts from similar premises. The book is one of the most widely cited works in all of the social sciences and is notable for its almost symmetric and equally important influence in both economics and political science.

This eventually led to the creation of a major journal, Public Choice, and the founding of the Public Choice Society, both of which continue in good health to this day.

Buchanan’s work on the theory of clubs (1965) made the case for treating many jointly used and produced goods and services as being intermediate cases between the purely private and purely public goods that had been the focus of analysis since the early work of Samuelson. It was fairly unique in its attention to the problems of both inclusion and exclusion when considering how to efficiently produce certain goods. Its ideas have still not been fully extended to the state itself, especially when states’ provision of costly but non-rivalrous goods become unsustainable in a world of mobile capital and labor.

He also did important work challenging the Pigouvian approach to externalities. Especially noteworthy was his observation that in the presence of monopoly power, taxes designed to correct externalities such as pollution may in fact reduce overall welfare (1969). This is because monopolies already set price above marginal cost and reduce output below the competitive level, thus requiring the ideal Pigouvian planner to know the full extent of market distortions before setting an appropriate corrective tax. It is striking how this idea and the other impediments to efficient Pigouvian taxation he mentions are so rarely discussed in the broader public policy debate on global emissions.

In addition to his pioneering work in public choice, Buchanan also promoted a more normative theory of political economy that is just as distinctive although less well known—what he termed constitutional political economy. This area was focused on the problem of structuring the meta rules that allow both political and economic exchange to function. In this sense he saw how politics and markets alike were about actions and exchanges within a given rules structure and he sought to argue for a normative theory of how the Rule of Rules should be designed. His work was also relevant for providing a pre-Rawlsian use of the veil of ignorance in a parallel construction in his political economy.

In his work on the Reason of Rules (joint with G. Brennan, 1985), Buchanan laid out most clearly his perspective on normative principles for creating a framework of rules from which “normal” political and economic competition could proceed. Buchanan was convinced that the problems of self-interested actors trying to arrive at neutral rules could be circumvented by disinterested contemplation from behind a veil of ignorance. This idea, which had been used in his previous work on public choice, was now given more emphasis in helping to create conditions under which virtual unanimity could be obtained for rational rules under which subsequent political and economic exchange could occur. In his view, separating people from their direct interests by focusing on distant and abstract rules structures could promote the reasoned rationality needed to allow for effective functioning in a world of self-interested actors in the later stages of the game.

Where Buchanan may have failed is in considering the problem of the evolution of constitutional rules themselves. Whereas his work on pubic choice demystified politics by moving political analysis away from a view of the government as benevolent despot towards one in which government agents were as strategic and competitive as private actors, Buchanan seemed reluctant to think of the evolutionary dimension behind the creation of constitutional rules in the same way. Though he was deeply aware of the historical roots of modern political structures, he wanted there to be good normative reasons for the creation of constitutions.

In private discussions about the relationship between public choice, constitutional political economy, and the new institutional economics, he conceded that there was an overlap between his work and those who sought to work more explicitly in the Coasian tradition, including North and Williamson. But he seemed uncomfortable with the notion of Hobbesian competition generating preferences for constitutional rules not grounded in reason or rights. He was reluctant to accept a view of violent conflict leading to constrained systems of rules not fully consistent with ordered reason and established principles of legitimacy. Hence his more normative, abstract view of constitutional political economy can be contrasted with more recent work by North, Wallis, and Weingast (2009) or Acemoglu and Robinson (2012) that treat the rise of modern states as compromises that evolved to permit exchange while containing violence between competing factions in society.

Buchanan thought of himself very strongly as a classical liberal and saw a normative theory of liberal constitutions as playing an important role in promoting the common good. For Buchanan, it was clear that the rules derived legitimacy from their having been chosen by the members of society acting collectively. He was always concerned for thinking of good rules as deriving from unanimity even if subsequent political negotiation under those rules was very far from a vision of cooperative exchange. It is clear that even though public choice is often portrayed as a cynical view of political man, Buchanan’s view was of conflict as mediated exchange holding back more violent and coercive interactions, not as Hobbesian struggle. This perhaps explains his gentlemanly and almost utopian view of what idealized constitutionalism might accomplish in contrast to more recent theories of the rise of the state. Thus, he shied away from fully applying his individual-interest approach to politics to the constitutional question itself.

Buchanan was also notable for urging economists to focus less on equations that maximized some putative utility function and more on the overall problems of coordination and exchange. Like many of his fellow giants, including Ronald Coase, Douglass North, and Armen Alchian, Buchanan decried the descent into routine formalism that has characterized mainstream economics since the 1960s. And like Hayek he worried a great deal about the empty worship of the natural sciences that seemed to mark modern theory. Yet Buchanan was successful at publishing at the highest levels of the profession and did a good deal to inspire modern work on political economics even if most practitioners continued to ignore his concerns about empty theory and excessive modeling. It is significant that most writing in formal politics today looks more like extensions of Buchanan and the Public Choice School than the older Samuelsonian tradition of the benevolent state and omnipotent regulator.

Ultimately, as Alex Tabarrok has suggested, the great tension in Buchanan’s work was that his normative theories gave us a glimpse of the ideal while his positive work in public choice suggested that such an ideal is never attainable.

Acemoglu, Daron and James A. Robinson, 2012. Why Nations Fail: The Origins of Power, Prosperity, and Progress. Crown Business.
Buchanan, James M. 1965. “An Economic Theory of Clubs,” Economica, new series, 32, no. 125, (Feb), 1-14.
Buchanan, James M. 1969. “External Diseconomies, Corrective Taxes, and Market Structure,” American Economic Review, 59, no. 1, 174-177.
Buchanan, James M. and Geoffrey Brennan, 1985. The Reason of Rules. Cambridge University Press.
Buchanan, James M. and Gordon Tullock, 1962. The Calculus of Consent. University of Michigan Press.
North, Douglass C., John Joseph Wallis, and Barry R. Weingast, 2009. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded History. Cambridge University Press.