An anodyne definition of democracy simply sees it as a set of decision-making institutions involving majority rule. The Virginia school of political economy’s definition—“government by discussion”—follows their intellectual lodestar, University of Chicago economist Frank Knight, and is a valuable complement.
In Towards an Economics of Natural Equals, David Levy and Sandra Peart explore the roots of Virginia political economy and the radical egalitarianism of James M. Buchanan and his contemporaries. The book is a thought-provoking treatment of 20th century economic thought or even of “neoliberalism,” and economists and intellectual historians interested in how we got here would do well to add it to their bookshelves.
Ford Foundation rejection / Towards an Economics of Natural Equals is an extension of Levy and Peart’s broader project on the history of economic thought. It is a natural companion to their 2017 book Escape from Democracy: The Role of Experts and the Public in Economic Policy. (See “The Discontented Animal,” Summer 2017.)
The authors dive into the history of Buchanan’s ill-fated effort to secure funding from the Ford Foundation to support his Thomas Jefferson Center for Studies in Political Economy at the University of Virginia. The outcome was depressing: the foundation (and administrators at the University of Virginia) seemed to think that Buchanan, Warren Nutter, Ronald Coase, and others in the Virginia and Chicago schools were reactionary right-wing zealots rather than scholars and economic scientists. The irony, Levy and Peart point out, is that by denying the grant request and hindering the Jefferson Center, the Ford Foundation made economics more monolithic rather than less.
One of the significant differences between more conventional economic approaches and the Chicago and Virginia approaches emerges from the correspondence between Buchanan and the Ford Foundation’s Kermit Gordon. Levy and Peart write, “Knight, Buchanan, and their followers did not take group goals as exogenously determined.” Elsewhere, group goals were assumed and exogenous: Maximize economic growth. Reduce economic inequality. Internalize externalities. Of course, the Virginians had their normative commitments, but their scientific program emphasized the importance of “substantial consensus” of individuals. Economists, in their view, had a modest role: instead of engineering and fine-tuning incentives at the micro level or aggregate expenditure at the macro level, they were to be students of society who limited themselves to identifying and perhaps recommending feasible options.
Knight’s influence / As I read Towards an Economics of Natural Equals, I drew two conclusions. First, while what was happening in Charlottesville was undoubtedly distinct, the road to Charlottesville led straight from Chicago and specifically from Knight. It is, of course, very well known that Knight was Buchanan’s mentor, but Peart and Levy trace the specifically Knightian themes that pervade the Virginia approach. They get right to the point on page 1 by quoting a letter from Nutter to Coase trying to tempt Coase into joining them in Charlottesville:
We have, I think, the makings of what could be a rather interesting little group in Buchanan, [Rutledge] Vining, and myself—all solid Chicago products who did our lessons in Knight well. We have in mind trying to build a rather distinctive little “school,” since we cannot hope—nor do we much care—to diversify in the grand manner of the giants of our profession. With studied diversification, we could be at best a third-rate faculty. Following the other track we may be able to do a useful job and to collect an interesting faculty and student body.
Second, they show that Knight is the crucial link between Buchanan and the philosopher John Rawls. Levy and Peart make creative use of Rawls’s copy of Knight’s The Ethics of Competition to establish the connection. Rawls had taken Jacob Viner’s course at Princeton and shared with Knight an appreciation for the “ideal of democratic discussion.”
Economists’ work / Levy and Peart show that contrary to those who might think of Virginia as just Chicago economics applied to politics, the Virginians developed a distinct tradition, albeit one rooted in the Chicago economics of Buchanan, Nutter, and Knight. Buchanan, Nutter, Gordon Tullock, Coase, and others swam against the intellectual tides within the economics profession.
To many economists, economics is about the care and feeding of the weak and slow-witted. If only implicitly, interventionism assumes economists are among a cadre of intellectual and moral elites blessed with the wisdom to run others’ lives. Over the last couple of decades, the rising popularity of behavioral economics has arrived at the same conclusion. To policymaking 20th century economists, people were too rational. They would free ride all over the place, and hence markets would fail to reach an optimal outcome. To the behavioral economists of the 21st century, people aren’t rational enough. They require the gentle hand—or occasionally the mailed fist—of the state to nudge them toward what is good for them.
Along these lines, the Virginia economics of natural equals emphasizes fairness rather than benevolence. It’s a point Buchanan made in his paper “The Samaritan’s Dilemma”: if we subsidize indolence, we get indolence. However, there is more than mere puritanical bootstrapist exhortations to get a job. Buchanan asks whether we are treating people properly: by being benevolent rather than fair, he and the other Virginians wondered whether we are treating the beneficiaries as equals or if we are treating them as something subhuman, like pets. The interventionist assumes he is his beneficiary’s superior. This lays aside the question of whether short-run benevolence is long-run beneficence. We might solve an immediate problem in the short run, but at the cost, perhaps, of creating more problems in the long run.
Neoliberalism / All in all, the Virginians have a pretty good track record. One of the most controversial products of the Virginia school was Nutter’s study of industrial production in the old Soviet Union. He went against the grain: the professional consensus was that the USSR was growing rapidly and that centralized control of the means of production could lead to a thriving, high-income economy. (In their earlier book Escape from Democracy, Levy and Peart tell the fascinating tale of how the myth of a productive USSR persisted in economics textbooks until the system collapsed.) Nutter disagreed and argued that the Soviet economy was something of a basket case. The only consumer goods sectors that seemed to thrive, or for which the goods available to Soviet consumers were comparable to those available to American consumers, were those that overlapped considerably with Soviet militarization.
Levy and Peart situate the Virginia school within the broader “neoliberal” movement and address several important topics that, I think, can use corrective analysis by people (like Levy and Peart) who know not only intellectual history but also economic theory. They explore Nutter and Buchanan’s controversial-though-it-probably-shouldn’t-be essay “The Economics of Universal Education” and situate it within Buchanan’s longer-term thinking about race. (He would later repudiate his support for vouchers because he believed they would undermine the fairness that would emerge from integration.) They trace Tullock’s ideas about the progress of knowledge to Karl Popper’s lectures at Emory University in 1956, before Tullock got involved with Buchanan and the Virginians.
The “new history of capitalism” is producing a steady stream of books and articles purporting to identify the unsavory origins of 20th century free market economics. (See, for example, Nancy MacLean’s Democracy in Chains and Lawrence Glickman’s Free Enterprise.) Levy and Peart offer a corrective that has the twin virtues of being non-conspiratorial and getting the economic analysis right. Towards an Economics of Natural Equals is indispensable reading for people interested in 20th century economic ideas.