James M. Buchanan (1919-2013)

James M. Buchanan is one of the main founders of public choice theory, the leading head of the so-called Virginia School of Political Economy and principal originator of the research programme of constitutional economics.

Buchanan was born on 3 October 1919 in Murfreesboro, Tennessee. He earned a BA from Middle Tennessee Teachers College in 1940, and an MSc from the University of Tennessee in 1941. After serving in the United States Navy from 1941 to 1945 he entered the economics doctoral programme at the University of Chicago and received his PhD in 1948. From 1948 to 1951 he taught at the University of Tennessee and from 1951 to 1956 at Florida State University. From 1956 on - except for a brief interlude at the University of California in Los Angeles (1968-69) - he held appointments at state universities in Virginia, at the University of Virginia from 1956 to1968, at Virginia Polytechnic Institute and State University from 1969 to 1983, and at George Mason University from 1983 until his retirement in 1999. In 1986 he was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his eminent role as paradigm builder in the fields of public choice and constitutional economics.

What is most remarkable about Buchanan’s work is the coherence and continuity of the research programme that he has pursued throughout his life, the basic contours of which are already visible in his first major paper “The pure theory of government finance” (1949). Starting as a public finance economist, Buchanan felt “intellectual frustration” with orthodox theorizing in his own field as well as in its close neighbour, welfare economics. The intellectual independence that allowed him, as a young scholar, to keep a critical distance from mainstream thinking Buchanan himself attributes in particular to two sources: to Frank Knight, “his professor” at Chicago, and to Knut Wicksell’s Finanztheoretische Untersuchungen (1896), a book he came across in the summer of 1948, during the interim period between his graduation and his first appointment.

Buchanan’s “intellectual frustration” was caused by what he diagnosed as “methodological confusion”, namely, an inconsistency between the fundamental theoretical and methodological principles that economists applied in their principal field, the study of market processes, and the perspective they tacitly adopted when, in such fields as public finance and welfare economics, they extended their analysis into the realm of politics. In their study of markets, economists adhere to methodological individualism, explaining collective phenomena as the aggregate outcome of individual actions and their interaction-effects, and assume individuals to be self-interested, advantage-seeking agents. Yet, so Buchanan charged, when they do public finance and welfare economics, they tacitly shift into a paradigmatically different framework. They tend to adopt an organicist view of society, looking at the state as if it were a supra-individual entity with its own value-scale, and to phrase their policy recommendations as if they were advising “benevolent despots” whose only aim is to maximize social welfare. For Buchanan, to diagnose what he regarded as fundamental flaws in mainstream theorizing in such manner also meant identifying the strategy that had to be adopted in order to rectify the “methodological confusion”. What needed to be done was to consistently extend the methodological individualism and the behavioural model that had formed the core of the Smithean tradition in economics from the study of market processes into the realm of politics and collective decision-making more generally. Carrying out this project was to

become Buchanan’s lifelong research agenda. The scholarly work that emerged from this research agenda - assembled in The Collected Works of James M. Buchanan (Buchanan 1999-2001) - can be broadly subsumed under two interrelated but separable rubrics: public choice and constitutional economics.

In early 1957, shortly after arriving at the University of Virginia, Buchanan founded with his colleague Warren Nutter the Thomas Jefferson Center for Studies in Political Economy.

It can be viewed as the precursor of the Center for Study of Public Choice that Buchanan established in 1969 with Gordon Tullock at Virginia Polytechnic Institute in Blacksburg and that he and his colleagues relocated in 1983 to George Mason University, its current home. It is because of this affiliation with three Virginian state universities that the research tradition associated with Buchanan’s work is often labelled as the Virginia School of Political Economy. Public choice theory began largely as a response to the market failure theory of welfare economics, a theory that diagnosed real world markets as “deficient” and in need of political correction whenever they fall short of the theoretical ideal of perfect competition. Buchanan and his fellow public choice theorists accused this approach of a fundamental analytical asymmetry. Its advocates, after diagnosing that real world markets fail when measured against an unattainable theoretical ideal, jump to the conclusion that government intervention is advisable, without ever asking if real world governments are likely to act in the ideal manner that they implicitly presume. Yet, so Buchanan argued, before government intervention can responsibly be recommended, this question needs to be answered, requiring a realistic theory of real world politics. The public choice project that he promoted was to develop, and apply in various ways, such a theory, an economic theory of politics that is on an equal footing with the economics of markets.

While public choice was the primary focus of Buchanan’s research in the early part of his Virginia career, later on his interest increasingly shifted towards constitutional economics, even if his pioneering contribution to the field, The Calculus of Consent (coauthored with Gordon Tullock), dates back to 1962. The two fields are closely related, but their emphasis is different. Both are about extending economic analysis beyond its traditional domain, the study of markets, but they do so in different “dimensions”.

Public choice theory extends economics “horizontally” from the market arena to the arena of politics, but it maintains its standard approach, namely, explaining how selfinterested individuals seek their advantage within given constraints, be it the constraints they face in markets or the constraints they face in the realm of politics. By contrast, constitutional economics extends economics “vertically” by drawing attention to the fact that human beings are not confined to choosing within given constraints, but can to some extent choose their constraints, in other words, that they can choose at different levels of choice. In particular, collectively, as politically organized groups, they can choose the “rules of the game” under which they act and interact.

The distinction between the constitutional and the sub-constitutional level of choice, between the choice among rules and the choice within rules is foundational for constitutional economics as the economics of rules. It is the trademark of a research programme that enquires into how self-interested agents, just as they can realize mutual gains from trade in markets, may realize mutual benefits by adopting better “rules of the game”. Its generalization of the gains from trade paradigm from the market arena to the level of political choice, and constitutional choice in particular, is in fact the very paradigmatic core of Buchanan’s constitutional economics. It is this outlook that distinguishes it categorically from a welfare economics that seeks to bridge the theoretical gap between the study of markets and the study of politics by supposing that policy choice is about maximizing a social welfare function, just as behaviour in markets is about maximizing individual utility functions. The inappropriate generalization of the maximization paradigm from the level of individual choice to the level of collective-political choice is, as Buchanan charges, the root cause of the “methodological confusion” that he diagnosed as a young public finance economist in his own field and in welfare economics.

With the research programme of constitutional economics he has suggested an alternative theoretical outlook the central message of which is that economists should recognize the gains from trade paradigm as the principal insight of their discipline that ought to be applied consistently to politics no less than to markets. Just as in markets, the voluntary consent of the trading parties is the only conclusive evidence of mutual gains, and hence of “efficiency”. In the realm of collective-political choice, voluntary consent, so Buchanan argues, must be considered the ultimate criterion of mutual gains, and hence of “efficiency” as well. The mission of constitutional economics is about dealing with the manifold analytical and empirical issues that a consistent and rigorous application of this alternative theoretical outlook raises.

Viktor J. Vanberg

James M. Buchanan (1919-2013)

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