Buchanan quipped that he was tempted to paraphrase Friedrich Hayek’s essay title “Why I Am Mot a Conservative” by titling this book’s postscript “Why I Am Not an Economist.” He objected to many orientations of contemporary economics, including a standard characterization of the discipline as the study of the allocation of scarce means among competing ends. Instead, he saw economics as a logic of subjective choice, which brought him close to the Austrian school of economics.
His thinking was, however, too big to fit in that school. He often invoked Adam Smith, the founder of classical economics. In many ways, Buchanan was a neoclassical economist, even if his criticisms were mainly directed at this reigning school itself.
Human nature / Economics, Buchanan notes, is based on a model of human behavior, as required for any science that tries to understand social phenomena. At the most abstract level, the individual is modeled as trying to improve his situation—this is the pure logic of choice. He wants to have more rather than less of whatever he desires. One means of getting more “is choosing to engage in trade.” Just as Adam Smith viewed human nature as characterized by a “propensity to truck, barter, and exchange,” trade is central to Buchanan’s thought; it is “the pervasive means through which man has expanded his command of goods.”
Buchanan emphasizes that individual motivations are not reducible to those of homo economicus, the self-interested pursuer of purely economic goods. Man has many different motivations. How does economic theory recognize that? One way is to apply utility functions to other human desires besides standard economic goods and services. Buchanan, however, believes that a theory based on such very general utility functions cannot be tested because, we may say, they reduce to the truism that individuals maximize what they maximize (though Gary Becker, a most standard neoclassical economist, appears to refute this objection). Buchanan follows another path and restricts economic theory to voluntary cooperation in markets (and, as we shall see below, in the quasi-market of politics). This is the realm of homo economicus.
Buchanan insists that economics must avoid what Hayek identified as “scientism,” which is the improper and naive use of “hard” science methods. Buchanan criticizes the sort of analytical economic theory that turns economics into a branch of mathematics. On the other hand, he considers theoretical statistics and the underlying probability theory as a useful reminder of “the relevance of randomness, or chance in determining outcomes” in social phenomena.
Institutions—rules that organize and dictate how things are accomplished in society—are crucial to Buchanan’s thought, as they are to much of contemporary economics. Institutions create the constraints and incentives within which economic and political activities proceed. Analyzing these activities requires an understanding of institutions.
Buchanan’s approach is grounded in methodological individualism, as is most if not all of economic theory, but he takes this grounding more seriously than many economists. Only individuals make choices. “ ‘Society,’ as such,” he writes, “must always be conceived in terms of its individual members.” There is no such thing as “the public interest” or a social welfare function, a sort of utility function for the whole society that welfare economists liked to imagine. Only the interests and welfare of the several different individuals exist.
He reminds us that a central discovery in economics has been the principle of spontaneous order—that is, the possibility of an auto-coordinated order where government direction is not constantly required. This principle “is in no way ‘natural’ to the human mind which, in innocence, is biased toward simplistic collectivism,” he writes. Economists must thus teach “a vision of economic process that is not natural to man’s ordinary ways of thinking.”
A remarkable chapter of the book, titled “Natural and Artifactual Man,” explains that people are not simply animals with preprogrammed behavior. Because individuals have free will and make genuine choices, “our predictions about man must always be less accurate than our predictions about animals.” Forecasting the behavior of a single individual is unreliable; forecasts can only be good for large numbers.
A person is also an “artifactual man.” The individual is not just a predictable short-term utility maximizer. In essence, he creates himself as he moves through time. He develops his utility function. Buchanan quotes his University of Chicago professor Frank Knight: “Insofar as man is wise or good, his ‘character’ is acquired chiefly by posing as better than he is, until a part of his pretense becomes a habit.” Buchanan concludes, emphasizing the sentence, “Man wants liberty to become the man he wants to become.” Who said that Buchanan was a pessimist? (But wait!)
Public choice analysis / Buchanan was a pioneer of the “public choice” school of economics, which models politicians, government bureaucrats, and special-interest groups the same way as standard economics models ordinary individuals: as self-interested. Between the private sector and the public sector, the individual’s self-interest does not change, although it will be expressed differently given the different institutional constraints. Public choice economics, which is the economic analysis of politics, goes on to show that “government failures” exist just like “market failures” do. Just because the latter exist does not mean that government solutions will be better than the problems they try to solve.
Buchanan opposes the traditional idea of welfare economics (and, implicitly, the idea held by many students of politics) that government officials are selfless decision makers. Either the individual is homo economicus and he must remain self-interested when he participates in politics, just as he is in other activities, or else he entertains other motivations, including altruism, in which case market failures would seemingly not be a problem. Either market failure is a problem and so is government failure, or else government failure is not a problem and market failure is not either.
Thus, if homo economicus is postulated, politics is not necessarily more efficient than the market and may be much less so. “What is the orthodox economists’ response when pure public goods are postulated?” Buchanan asks rhetorically. “It is relatively easy to define the formal conditions that are necessary for allocative efficiency, but it is not possible to define the governmental process that might generate these results.”
Yet, for him, public goods do exist and there is scope for collective action in the form of state intervention. Recall that public goods are goods that all individuals want and that all can consume simultaneously. Consequently, only government can finance them to a roughly efficient level, overcoming the free-rider problem. National defense and police protection are standard examples of public goods. But—and this is crucial to understanding Buchanan—the only basis for such government action is unanimous consent among individuals. “There is nothing even remotely sacrosanct about the will of a simple majority of voters in an election,” he writes. The equivalent of exchange and trade in politics is unanimous consent.
A related structural element of Buchanan’s thought is that it is easier to agree on general rules than to politick on ad hoc transfers or tax shares. Agreeing on general rules is the same as agreeing on a constitution. The test of any constitutional rule is whether all individuals could conceivably have agreed to it.
Buchanan noted that “the Leviathan that we observe today simply cannot be ignored.” A sort of constitutional reform was thus needed to chain Leviathan and restore constitutional government.
Science or ideology? / Is all this really social science? This is a complex question to which Buchanan gives a complex answer. Economics, he believed, is first and foremost a positive science, which must guard against normative judgments inserted at the start of the analysis. Value judgements must come after positive analysis. Any policy evaluation must bring in value judgments regarding the alternative of no policy versus the expected results of the proposed policy.
In normative judgements, the economist has no more authority than the ordinary citizen. The best the economist can do is to offer “suggestions for widening the range for potential choice” and thus the range of potential trades. The economist should be the counselor of the people, not the adviser of the state. He should recommend realistic institutional changes. Heeding his own advice, Buchanan would not say which form the necessary constitutional reform should take.
He admits that his policy orientation still hides value judgments. For instance, for a human being with free will, more choice is better than less. The ultimate goal is the welfare and flourishing of all individuals. The individual is a better judge of his own welfare than is any external observer, a value judgement “upon which Western liberal society has been founded.” Consent of all and every individual is required, as opposed to the rule of some elite.
Some “faith” (Buchanan’s word) is required. On the positive side, we must have faith that it is possible to do value-neutral economics, that truth “can be discerned independently of value judgments.” On the normative side, we must believe in the value of liberty and progress.
Buchanan argued that economics as such has nothing to say on “the proper private-sector–public-sector mix.” As much as he rejected the bad dream of socialist planning, he considered “the libertarian anarchists who dream of markets without states” as “romantic fools, who have read neither Hobbes nor history.” Perhaps he mellowed on this indictment of libertarian anarchists after the 1985 publication of Anthony de Jasay’s The State, which he reviewed favorably in the journal Pubic Choice.
Morals / As opposed to a mathematized science aiming at the maximization of some objective function, Buchanan sees economics as more of a “moral science,” as it was classified at the time of Adam Smith. Its positive contributions should ultimately facilitate how people can better live in society. To convey this more general scope of economics, Buchanan often uses the older term “political economy.”
The interface between morals and economics is an area of inquiry in which Buchanan was always interested. Social order, he writes, “requires general acceptance of a minimal set of moral standards”; otherwise, naked power must replace independent individual actions. Among important institutions that represent moral constraints, he mentions family, religion, property rights, schools, and agreed-upon law. He even mentions patriotism and respect (presumably guarded) for government among moral values.
Unlike Hayek, Buchanan does not fear a somewhat constructivist approach to social reform. Which of them is correct is an important question to ponder as one reads What Should Economists Do?
Buchanan echoed fears “that modern man has lost the faith in progress that was pervasive in the post-Enlightenment period, the eighteenth and nineteenth centuries, and most of this century.” He was worried about “the excesses of the 1960s,” when moral standards were attacked and the ordered intellectual anarchy of academia was challenged. He found incongruent that, in universities financed by taxpayers, “academic freedom” would protect professors more interested in transforming their classrooms into revolutionary cauldrons against liberty itself than in pursing truth in their disciplines.
Buchanan is on record as favoring public schools, inheritance taxes, and equality of opportunity. Perhaps one might say that he was a classical liberal, stock-and-barrel. The danger of equalizing opportunities may seem innocuous by the condition of unanimous consent, but it is not that clear. Consent needs to be given behind some veil of ignorance à la John Rawls. And since unanimous consent is virtual, how do you determine that it has been given? It is clear in Buchanan’s mind, however, that once generally accepted institutions are in place, individuals should be free to spend their incomes and live their lives as they want.
Current evolution / What happened in the five decades or so since Buchanan wrote these essays? Here are some observations that seem uncontroversial. Economics has continued to accumulate “the excess baggage of modern mathematics” that we do not need “to grasp and to convey the basic wisdom that Adam Smith discovered and that his successors emphasized.” The subsequent development of the field of behavioral economics has brought some important psychological insights to economics, but it is disappointingly unmindful of the motivation of government actors and benevolent despots. Economists continue to be mainly interested in advising Leviathan on how it can manipulate people rather than how it can help people better achieve their desires, as Buchanan thought economists should do.
In America, both major political parties now seem to embrace government power as the only means of “running society,” as opposed to spontaneous coordination through markets and individual liberty. There is some evidence that American public opinion is veering toward socialist causes, from redistribution to protectionism and business-bashing.
In a 2005 article in Public Choice, Buchanan himself predicted a revival of socialism as people ask the state to fill the role for them that parents fill for their children, what he calls “parental socialism” or “parentalism.” The article includes this troubling remark: “The thirst or desire for freedom, and responsibility, is perhaps not nearly so universal as so many post-Enlightenment philosophers have assumed.” Buchanan seems to have grown more pessimistic that his artifactual man “wants liberty to become the man he wants to become.” Or perhaps he believed this varies between individuals?
On the bright side, he contributed to a revival of subjectivism in economics. Public choice economics has desacralized the state. As a result, more students are now introduced to the basic idea that social coordination without constant coercion is possible.
Buchanan was certainly not the “average” economist. He was an inquisitive economist and a brilliant political philosopher. In both fields, he was one of the very best of the 20th century. Whether one agrees or not with him on all points, his thought presents challenges that we, interested in economics, politics, and the artifactual man, must meet.