I recently joined Liberty Fund’s No Due Date economics book club, where over the next year, participants will read one book per month selected by GMU economics professor Peter Boettke. Pete will also lead group discussions and provide other resources. January’s selection is the first volume of James Buchanan’s collected works, The Logical Foundations of Constitutional Liberty, which collects many of his better-known papers from throughout his career. Buchanan was one of the cofounders of public choice theory, and won the 1986 economics Nobel.
This post, and the following two, collect my notes from those readings. I’m posting them here mostly for my benefit, so I can easily find them during the discussions, and can refer back to them later if I cite them in the future. Readers new to Buchanan or curious about the major themes of his work might benefit from skimming these notes, though I highly recommend reading the primary source. I may or may not do this for future months’ readings, depending on how useful it is.
Note that I copied and pasted these notes unedited from a Word document I kept open while reading. These notes do not always distinguish between as-is descriptions of Buchanan’s arguments, and my opinions and original thoughts about them. Reader beware.
January – James Buchanan, The Logical Foundations of Constitutional Liberty: Collected Works, Vol. 1
WEEK 1 of 3: WHAT SHOULD ECONOMISTS DO?
“What Should Economists Do?” (Southern Economics Journal, 1964), pp. 28-42.
-They should seek understanding of Smith’s propensity to truck, barter, and exchange.
-They should do catallactics, not oikonomia
-Methodological individualism. Societies don’t have ends in mind, individuals do.
-Lionel Robbins and Max U. as adversaries.
-Don’t posit things as problems; that implies a solution—and a solver, usually the economist or some politician. The real world is far more complicated than that.
-Subtle point, but important: A Max U. robot doesn’t really make choices among alternatives. It follows a pre-determined program.
-“Symbiotics” is Buchanan’s preferred term for economics, even over catallactics. It captures the inherently social nature of what economists study. It is a social science. There is no economics or symbiotics in studying Robinson Crusoe until Friday joins him.
-Another subtle point from Frank Knight: in perfect competition, there is no competition, and no trade as we understand the terms.
-Equilibrium through the perfect competition lens is harmful to understanding. When equilibrium does happen it’s an emergent process. Both of those words matter. Nobody designs it, and the process never ends. Something can always change.
-Markets are institutions and processes, not Max U.s achieving societal goals.
-Politics is also exchange. Economists should study it that way.
-Market exchanges are between equals; political exchanges are between superiors and subordinates.
-Public choice, properly done, is not normative. He expects pushback on this point.
“Politics without Romance” (Lecture, Institute for Advanced Studies, Vienna, Austria, 1979), pp. 45-59.
-Don’t fall for the Nirvana approach. Compare realistic alternatives when looking at institutional arrangements.
-Public choice is supposed to be positive, not normative. First figure out what is, which does not vary from person to person, before proceeding to the should part, which does vary from person to person.
-Pre-constitutional political exchange precedes market exchange.
-Political exchange affects the whole public; hence the name “public choice.” Market exchange affects only the individuals involved (ignoring externalities, which Buchanan does not mention).
-Tension: where does legitimacy come from? Buchanan says it comes from contracts, not rights. But contracts themselves depend on consent. A tension in his thought?
-A “productive state” can emerge to provide public goods by solving transaction cost problems, at least to some extent.
-Cyclical majorities tend to happen in democracies under certain rules. Arrow was on to something, though he tended to ignore institutions.
-Duncan Black and the median voter theorem also have explanatory power in how political exchange works.
-Most people are multi-issue voters, which makes modeling all but impossible, and can result in cyclical majorities.
-Good analogy: people vote on the temperature they want. Then we see if the heating and cooing system is capable of delivering it.
-In a representative democracy, representatives’ incentives are not the same as their voters’ incentives.
-Marginalism does not exist in political goods. They are all-or-nothing bundles. Marginalism does exist in market goods. Consumers can choose a little more or less of each product as they choose.
-Public choice is for something, not just against the romantic view of politics. It is for enabling human cooperation, and avoiding the Hobbesian trap. It sees institutional design as the method that can accomplish this as best people are able.
“Keynesian Follies” (Book chapter contributed to a Nobel conference volume, The Legacy of Keynes, 1987), pp. 164-178.
-Keynes was an artist, not a scientist. His goal was to change the perception og his economist peers. This was one reason he changed his mind so often.
-The depth of Keynesian follies are from Keynes’ followers more than the man himself.
-Keynes was aware of the importance of institutions; less so his followers. Keynes built a model to get people to think that monetary policy mattered less than fiscal policy. The trouble began when this was taken as scientific, rather than a goading to move scholarship in a certain direction.
-Keynes was responsible for people to concentrate on employment as a policy objective, and therefore neglect monetary and market institutions.
-Thought: Is Buchanan getting the arrow of causality wrong? And I have my doubts that people were ever as institution-minded as Buchanan seems to argue.
-Buchanan argues for a full employment impossibility theorem, taught by Henry Simons and C.O. Hardy. Closed market economies have three possible characteristics, of which only two are simultaneously possible at a time: 1) full employment, 2) stable money, and 3) noncompetitive labor markets.
-Keynes’ theory was of its time, but didn’t work in the 1940s and later. Possible implication (would Buchanan go there?) Institutions, if not timeless, are at least more long-term oriented.
-Monetary policy has much stronger effects than fiscal policy. Why then, Buchanan asks, are most Keynesians (asidE from Lerner) focused instead on fiscal policy? One possibility is an ideological preference for a larger public sector.
-Keynesians should have known that fiscal fine-tuning (surplus during booms, deficits during busts) is impossible for public choice reasons. Politicians don’t work that way.
-Keynes the artist of 1936 intended to persuade people to take extraordinary policy actions during extraordinary times, when the normal political rules didn’t necessarily apply. The Keynes of a more stable era would likely have given different advice, but his disciples didn’t seem to realize that.
-Buchanan closes by asking if many Keynesian follies could have been avoided by widespread use of a commodity standard. My answer is maybe, but would the tradeoffs have been worth it?