This collection of essays exemplifies both the breadth and the depth of James M. Buchanan ’s (1919–2013) contributions to economics in the post-war period. He received the Ph.D. in economics from the University of Chicago in 1948, writing a dissertation on fiscal issues within federal systems of government.1 Buchanan started his career as a public finance economist who wanted to take the theory of public finance in a starkly different direction, as Marianne Johnson (2014) illustrates through archival research.
The public finance that Buchanan encountered, throughout the western world and not just at Chicago, was public finance construed as applied statecraft. Public finance theorists focused on providing recipes for governments to pursue in doing good things for their subjects. The two main exemplars of this orientation toward public finance during Buchanan ’s student days were Francis Edgeworth (1897) and A. C. Pigou (1928). Edgeworth posed the central problem of public finance as one of how a ruler who wanted to minimize the burdens that his tax extractions imposed on his subjects should impose those extractions. A half-century later, Edgeworth’s formulation had morphed into the theory of optimal taxation, which construed the fiscal problem as one of how the state should impose taxes and confer subsidies to maximize some notion of happiness or well-being for a society.
In contrast to Edgeworth’s macro-level orientation, Pigou approached public finance from a micro-level orientation. That alternative orientation, however, was employed to the same effect of articulating what fiscal actions a state should employ assuming that it operated with a single-minded devotion to promoting social welfare. What resulted in Pigou (1928) was a menu of taxes and subsidies designed to promote beneficial activities and restrict harmful activities. Within the Edgeworth-Pigou orientation that dominated public finance , the state was treated as a benevolent despot and public finance economists were regarded as instructing that despot in how to promote the public good.
Buchanan began his scholarly career by wanting to transform the theory of public finance in two ways. First, he wanted to place the theory of public finance on an explanatory and not a hortatory footing. Rather than seeking to offer instruction to governments about the merits of different fiscal programs, Buchanan sought to orient public finance toward explanatory questions. Rather than seeking to set forth maxims about how progressive an income tax should be, Buchanan sought to explain how progressive an actual tax system is (Buchanan 1967) as that system is constructed through some political process. Second, Buchanan took substantively and not just formally the commonplace assertion that democracy is a system of “self-governance .” Democracy might be a system where people govern themselves, but it could also be a system where an elite few govern the numerous masses (Michels 1962; Mosca 1939).
For instance, within a market system the pattern of production might be directed by corporate managers or it might be directed by consumers. As a formal matter, production is always directed by managers, for it is they who direct corporate affairs. As a substantive matter, sufficiently intense competition among corporations can transform managers into servants of consumers. The economic theory of free and open competition describes how this transformation takes place. In contrast, the economic theory of regulation explains how regulation can transform managers from servants into masters. In similar fashion, democracy might be a system of government that transforms politicians and bureaucrats into servants of the citizenry or it might be one that enables them to act as masters over the citizenry. Which is the case in both markets and politics depends significantly on the openness and the competitiveness of any system of democratic political economy, as Buchanan was to uncover and elaborate throughout his career.
In his rational reconstruction of Buchanan ’s body of scholarly work, Richard Wagner (2017) described Buchanan at the end of his scholarly career as a giant oak tree whose scholarly oeuvre sprang from a sapling he planted in 1949 with his first scholarly paper, “The Pure Theory of Public Finance ,” which he published in the Journal of Political Economy. In that paper Buchanan explained that a theory of public finance must rest on some form of political theory, for which he saw two options. One option was the prevailing organismic theory that treated the state as some action-taking entity, and with the democratic version of this theory being grounded in benevolent despotism. The other option, the uncovering and exposition of which Buchanan dedicated his scholarly career, was an individualistic theory of democratic political economy.
By this individualistic theory, Buchanan took substantively and not just formally the assertion in the American Declaration of Independence that governments derive their just powers from the consent of the governed. As a purely formal matter, any democratic form with universal franchise must reflect the consent of the governed, for consent ipso facto resides in the democratic form. As a substantive matter, however, democracies can entail a good deal of duress and force, like the ability of regulation to transform corporate managers from servants of consumers into masters. In his initial scholarly paper, Buchanan (1949) planted the sapling from which his entire body of scholarly work was to spring.
Buchanan sought to place public finance on an explanatory footing, and to do so in a way that was substantively consonant with the image of democracy as a political system where people truly governed themselves. The first of the several scholarly challenges he faced was how to move theoretically speaking from individual desires to collective actions. Democratic actions entail transformation of a “you” and “me” into a “we.” A kidnapper and his victim are a plurality, but they do not comprise a “we.” They remain a “you” and a “me.” To become a “we” requires consent among the people included within that designation. This recognition led Buchanan to explore the properties of different institutional arrangements for taking collective action, with those various arrangements differing in their ability to reflect consensus among the governed. The theory of public choice thus emerged as one major scholarly branch within Buchanan ’s oak tree.
Without some framework of rules to constitute a group, a group is but a mob (Munger and Munger 2015). This recognition led Buchanan to emphasize the constitutional framework by which some collection of people govern themselves. The field of inquiry now known as constitutional political economy emerged out of Buchanan ’s explorations into alternative rules by which groups might be constituted. It should be noted that constitution does not refer only to some national level of government. It refers to any group that must operate through formal procedures. The people who comprise a legislative assembly are likewise just a mob until they acquire organization, rules of procedure, and the like. Constitutional political economy thus emerged as another major branch within Buchanan ’s scholarly oeuvre.
Starting with his doctoral dissertation, federalism was of especial interest throughout Buchanan ’s career. Most people live inside the territory occupied by several governments and not just one government. One line of thought presents federalism as a system of government that preserves liberty when compared with a system where people face only a single government. An alternative line of thought leads one to wonder just how it might be beneficial, or to whom it might be beneficial, to face a multitude of governments rather than facing just one government. Throughout his career, Buchanan recurred to federalism as a constitutional arrangement of governments and did so with enough verve and energy to render federalism another major branch of inquiry on his scholarly tree.
A person at an advanced age can rationally invest in planting a forest even if he or she cannot reasonably expect to be around when the trees are harvested. What makes this action rational is the existence of private ownership over the trees. A person who fails to maintain the forest will find the value of the forest falling even if that loss rests with heirs. Most economic action entails acting today with consequences borne tomorrow or the day after tomorrow. Private property is an institutional arrangement that effectively collapses time, meaning that bad decisions today that don’t manifest until later will rest on the person who made the decision. Public debt raises similar issues within democracies, and this was a recurring theme throughout Buchanan ’s career. It is easily understandable why politicians like to spend more than the like to tax. That public debt enables politicians to do this by shifting costs from present to future taxpayers was a recurring theme in Buchanan ’s work.
Buchanan was an energetic and articulate proponent of the classical liberalism that informed the American constitutional founding. According to the Declaration of Independence, Americans were entitled to life, liberty , and the pursuit of happiness. The concept of entitlement has undergone enormous transformation since the late eighteenth century. As an economic-theoretic proposition, any statement that can be made about the product side of the market entails a complementary statement about the factor side of the market. The Herbert Hoover aphorism about guaranteeing a chicken in every pot was a product-market statement that in turn would require some such factor market statement as a requirement that able-bodied people be conscripted one day per month to work on chicken farms. Most theorists of liberty emphasize liberty , as did Buchanan , but Buchanan also paid considerable attention to personal responsibility. The relationship among liberty, responsibility, and entitlement formed another major branch on Buchanan ’s scholarly oak tree.
The relationship among libert...