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, the third of three, collects 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.
WEEK 3: FREEDOM IN CONSTITUTIONAL CONTRACT
“The Domain of Constitutional Economics,” (from Constitutional Political Economy, 1990), pp. 377-395 (pp. 1-18 of the original book).
-What is constitutional economics? It’s about two things. One, it’s about rules and institutions affect individuals’ behavior. Two, it’s about how people decide on those rules and institutions. Elsewhere, Buchanan calls these post-constitutional and pre-constitutional analysis. Constitutional economics also emphasizes cooperation over conflict (showing Buchanan’s Hobbesian roots).
-Buchanan’s argument here is similar to Pete Boettke’s distinction between mainline economics (Smith, Mill, Hayek) and mainstream economics (Samuelson, Harvard/MIT tradition)
-Ordinary economics is about choice within constraints. Constitutional economics is about choice among constraints.
-Post-Samuelson economics is about Max U. thinking; constitutional economics is about exchange. It’s the old oikonomia-vs.-catallactics debate. Samuelsonians have also dropped methodological individualism in favor of a collective choice model, and added a romantic view of government. Lastly, they downplay or ignore the importance of institutions.
-A spectrum argument. At one extreme, individuals choose their own constitutional constraints that affect just them—dietary choices, retirement savings decisions, and so on. At the other extreme are constitutional constraints that affect an entire society—public goods, a national governmental structure, and the like. In between are club goods and membership associations that constrain parts of society.
-Distinction: Constitutional economics is about exchange and cooperation. It is positive-sum. Constitutional politics is about conflict, and has winners and losers. Not necessarily zero-sum or negative-sum, but not Pareto-optimal, either.
-Constitutional economics has roots in classical political economy and contractarian political philosophy.
-Buchanan believes the mainline economic tradition should have been exclusively based on contractarianism. He has some harsh (for him) words about Bentham and utilitarianism.
-Interesting, and not sure I agree: Buchanan sees natural rights as a rejection of methodological individualism, whether grounded in right reason, or religion, or the state. This theme needs to be further explored.
-An argument I haven’t seen before: the individualistic postulate requires that all individuals count equally. To count some individuals are more important than others requires some supraindividual power to do the weighting.
“The Constitution of Economic Policy,” (Nobel Prize lecture, 1986), pp. 455-468.
-Buchanan begins by acknowledging his intellectual debt to the Swedish economist Knut Wicksell’s work on public finance–appropos for a Nobel lecture given in Sweden, but also true.
-Wicksell didn’t assume the benevolent despot, he wanted economists to consider the real-world governments that enact policies.
-Wicksell had Buchanan’s big three postulates: methodological individualism, Homo economicus, and politics-as-exchange.
-The Max U., institution-ignoring thinking that came to dominate post-Samuelson economics doesn’t work well for studying politics. That’s why public choice is novel to many mainstream economists, despite its mainline origins.
-The person who chooses between apples and oranges in the store is the same person who chooses between Candidates A and B in the voting booth. Institutions matter because they change how this person decides in each circumstance. Market institutions are different than political institutions, so the same people have different decision-making incentives in those two environments. A normative analyst would add that this is one reason smart people often choose bad policies.
-There is no need for net wealth or net income to be an individual’s dominant behavioral motive. It can be anything; different people have different preferences. But they pursue those different ends through more-or-less Homo economicus methods. I add that this could also be because of marginalism. Once wealth or income reach diminishing returns, other factors become more important at the margin.
-Reform should focus on the constitutional level, not on this or that policy. Institutions matter.
-The degree of unanimity in political exchange is analogous to the degree of freedom to exchange in markets.
-Transaction costs mean achieving unanimity in practice is usually impossible. This doesn’t mean rejecting unanimity as an ideal; just get as close to it as marginal and transaction costs allow.
-In the stage of constitutional choice, people operate behind a Rawls-style veil of uncertainty (do I recall that Buchanan employed this concept before Rawls did?). They pick rules they believe give them the best chance of a fair outcome, not which they believe will most benefit them personally.
-Wicksell’s lack of normativity about distribution questions, beyond democratic consent, is a reason for his neglect. Samuelsonian economists are not interested in Wicksellian questions. They care more about direct outcomes than abstract processes.
-Deficit financing probably does not pass the contractual test. Future generations would probably not consent to paying for their parents’ deficit spending.
“The Royal Swedish Academy of Sciences Press Release” (1986), pp. 3-7.
-Briefly summarizes Buchanan’s main themes: political actors are as self-interested as market actors; focus on rules and institutions; the unanimity principle as a benchmark ideal; politics as an exchange process for mutual benefit, rather than a means of redistribution; opposition to deficit spending.
“Better than Plowing,” (1986), pp. 11-17.
-Buchanan’s autobiographical essay, written so he could shrug off reporters after his Nobel. The title alludes to his rural upbringing.
-He grew up poor on a Tennessee farm, though his grandfather was a one-term populist governor of Tennessee. After college he served four years in the military during World War II, under Admiral Nimitz and others. A year at Columbia made him resent coastal elites and hardened his attitudes against discrimination.
-He attended Chicago for graduate school, where Frank Knight converted him from a populist libertarian socialist into a free-market advocate. A chance discovery of Knut Wicksell’s book in the Harper library changed his career. Knight and Wicksell would remain Buchanan’s biggest influences.
-He also spent a post-graduate year in Italy studying public finance, which influenced his early work (note that Italy’s government did not take these economists’ advice).
-He learned from Earl Hamilton, Chicago professor and Journal of Political Economy editor, the sound career advice of “keep the ass in the chair.”
Inertia Wins! 