The contractarian constitutional political economy of James Buchanan

Two influential edited volumes could also be added to this list of classics: Toward a Theory of The Rent Seeking Society (1980, edited with Gordon Tullock and Robert Tollison) and the Theory of Public Choice II (1984, edited with Robert Tollison).

I have previously written on Buchanan’s contractarian public finance, just after he won the Nobel Prize (Congleton 1988) and on his influence on the Virginia School of Political Economy on the occasion of his 80th birthday (Congleton 2002).

Buchanan himself often provided summaries and overviews of his own research program. This was often done in passing in order to set up new research based on his earlier work. Nonetheless, Buchanan once told me that I put the pieces of political economy puzzles together better than most people and it is hoped that he would have supported this paper as he did my paper on his public finance written shortly after he won the Nobel Prize.

Note that more than half of the 14 most cited Buchanan works address policy issues of the twentieth century, albeit in a general way.

The methodological shift that occurred in the 1970 s clearly affected Buchanan’s ability to place his work in the “top” journals, which he had routinely done in the 1950 s and 1960 s. After 1970, partly also because of a shift in his own focus, far fewer of his major papers appear in the Journal of Political Economy or American Economic Review. Until the 1970 s, the tools taught in today’s intermediate microeconomics courses were sufficient to satisfy the technical requirements for publishing in essentially all economic journals.

He joined the navy to avoid being drafted into the army. His switch to Economics and to the University of Chicago after the war reflected his experiences in the Navy, advice from a former political science professor (C.C. Sims) and the G. I. bill. See “Better than Plowing” (1986, “Early Education,” and “Sense of Authority”.

Buchanan’s early work on interstate fiscal equalization (1950) was an effort to counter centralizing tendencies inherent in what would later be called a welfare state. “The laissez faire result will be the ultimate centralization of a large share of effective political power, either directly through the assumption by the central government of traditional state and local functions, or indirectly through restraining financial conditions in an expanded grant–in–aid system. Therefore, those who desire to see maintained a truly decentralized political structure in the power sense, must take some action in support of proposals aimed at adjusting these interstate fiscal differences.” (Buchanan 1950: 599).

“The attempt to examine the consistency of majority voting requires the assumption that individual values do not themselves change during the decision–making process. The vulnerability of this assumption in the general case has been shown by Schoeffler. Individual values are, of course, constantly changing; so a post–decision ordering may be different from a pre–decision ordering” Buchanan (1954a: 120). See also (Buchanan 1959: 136). Regarding over aggregative normative analysis, consider this criticism of focusing on state and state governments rather than individuals: “Equality in terms of states is difficult to comprehend, and it carries with it little ethical force for its policy implementation. And, is there any ethical precept which implies that states should be placed in positions of equality?” (Buchanan 1950: 586).

“Properly understood, my position is both democratic and egalitarian, and I am as much a scientist as any of my disciplinary peers in economics. But I am passionately individualistic, and my emphasis on individual liberty does set me apart from many of my academic colleagues whose mindsets are mildly elitist and, hence, collectivist.” (Buchanan 2007: Kindle location 1900.).

The Senate unanimously supported the declarations of war against Japan, Germany, and Italy in December 1941 in three separate votes (82–0, 88–0, 90–0). See the US Senate Website. There was only a single negative vote in the House of Representatives opposing the declaration of war against Japan after Pearl Harbor.

Buchanan spent the 1956–1957 academic year as a Fulbright fellow in Italy, where he read classic works by Italian public finance scholars such as de Marco, Mazzola, and Puviani. (He had previously read an English translation of de Marco’s First Principles of Public Finance during his graduate school days.) His Italian year also increased his interest in the politics of public finance and in Italy itself. (See Buchanan 2007: ch. 6.).

It is interesting to note that Buchanan controlled his own intellectual environment more than most academics do, and did so from a relatively early age. Buchanan had been recruited to the University of Virginia in 1956 to be department chairman (from Florida State University, where he had been chairman for 2 years). Shortly after moving to Virginia, he secured a grant to fund a visiting scholars program that brought Knight, Hayek, Polanyi, Allai, Ohlin, Hutchison, Black, Leoni, and many others to campus. He and Warren Nutter created the Thomas Jefferson Center for Study of Political Economy in 1957. Tullock joined, initially as a visiting scholar, in 1958. He remained chairman until 1962, but continued codirecting the center. (His talent as an administrator and leader was evidently partly the result of his experience as a junior naval officer at the headquarters of the Pacific Fleet during WWII, where he had many opportunities to observe and experience the effects of leadership and organization, both good and bad.).

It is my belief that it was Buchanan, rather than Tullock, that saw the overarching importance of what he and Tullock had been working on and suggested the book project, which they wrote over the course of a year. (Tullock was at the University of South Carolina for most of that period, making their joint efforts dependent on old–fashioned postal mail, as there was no Internet or e–mail at the time). The last draft of the book emerged from Buchanan’s typewriter and has his “voice”—as true of most of his coauthored works. Both men had obtained fellowships for that year (Buchanan from Ford and Tullock from Rockefeller), which allowed them to devote themselves nearly full–time to the work.

See Congleton (2012) for an overview of Tullock’s contributions to the Calculus and to constitutional political economy. The neoclassical parts that demonstrate how rational–choice models can be used to analyze alternative decision rules and constitutional architectures is mostly Tullock’s contribution to the joint enterprise.

Buchanan once told me that his piece on Arrow was the only one in which he felt intellectual epiphanies, and in a careful reading of this dense piece, one can see many points that would be repeated in his constitutional political economy that were worked out in that piece for the first time.

The term “veil” for the uncertainty idea was applied much later, after it had been found to complement and contrast with Rawl’s use of the “veil of ignorance” in his classic book on justice as fairness (Buchanan 1971). The more or less contemporaneous work of Rawls and Harsanyi on fairness and uncertainty and earlier work by Vickrey were at that point unknown to Buchanan or Tullock. Otherwise, the contrast between what would later be called their “veil of uncertainty” approach, the Rawlsian “veil of ignorance,” and Harsani’s utilitarian uncertainty would surely have been laid out in Calculus, instead of at a much later date. See, for example Buchanan and Vanberg (1989). Indeed the early pieces by Rawls and Harsanyi are not much cited relative to pieces written well after Calculus.

There is a phrase that captures this relentless effort that Buchanan would introduce to his students each year: “Only by varied and repeated iteration can new ideas be impressed on unwilling minds.” A sentiment expressed to him by Frank Knight with roots in Herbert Spencer. And, it may serve as a partial explanation for his interest in revisiting fundamental issues so many times.

See Congleton et al. (2008) for an overview of the enormous literature stimulated by Tullock’s two papers on rent seeking.

The acceleration may also reflect the fact that he stopped being the University of Virginia’s economics department chairman in 1962.

The most important of these was a book (Buchanan 1977) on the political economy of national debt coauthored with Richard Wagner.

His output rate of about one page a day of finished material continued thereafter for most of his life; 350 pages a year is ten 28–p papers and a third of a 200–p book. His output slowed a bit after his retirement at the age of 80 in 1999. Even in his late eighties, he routinely produced more original work each year than most of his colleagues at George Mason University or VPI.

Indeed, I remember making this point in an undergraduate term paper written at VPI in 1973.

The Power to Tax is the only one of Buchanan’s major coauthored books in which no mention of a division of writing responsibilities is mentioned in the preface. This book, more than the others, is evidently truly a joint work, and Brennan’s influence on the prose and models is evident throughout the book. The Power to Tax is an extended version of Buchanan and Brennan (1977), a provocative piece published in the Journal of Public Economics.

In this it could be said to complement Democracy in Deficit: The Political Legacy of Lord Keynes, written with Richard Wagner and published in 1977. That book focused nearly entirely on the political economy of debt finance. The policy relevance and impact of Democracy in Deficit and The Power to Tax doubtless played a role in bringing Buchanan’s work to the attention of the Nobel Committee a few years later.

Their paper and book stimulated only a modest amount of theoretical work in public finance on fiscal constitutions, as with Usher (1981). It may have played a larger role in politics, in which tax constraints were often proposed via referenda. Their analysis of tax competition among governments played a larger role in the subsequent federalism literature, as with Oates (1985) and Qian and Weingast (1997), and in the corruption literature that emerged in the next two decades, as with Rose–Ackerman (1999) and Schneider and Enste (2000). The Leviathan model also played a role in subsequent analyses of dictatorship by Olson (1993) and Wintrobe (1998) and for constitutional theory as applied to policy analysis (Persson and Tabellini 2003).

See Congleton and Bose (2010) for a public choice analysis of the emergence of the welfare state in this period.

In contrast to The Power to Tax, whose first draft was penned by Geoffrey Brennan, the writing of The Reason of Rules was similar to that of The Calculus of Consent, in which different chapters were written principally by different authors. As with the Tullock collaboration, there are distinct differences in styles of argument and analysis in their respective chapters. The contrast in styles somehow manages to make the book more interesting, as tightly woven arguments are combined with novel ideas and new choice models, geometry, and supporting mathematics. Brennan, like Tullock, is far more neoclassical and less concerned with creating tightly woven arguments than is Buchanan.

The notion of weakness of will was evidently introduced into Buchanan and Brennan’s thinking by Jon Ester’s (1979) book, Ulysses and the Sirens: Studies in Rationality and Irrationality. The idea that people occasionally make mistakes was introduced into game theory at about the same time by Kreps and Wilson (1982), which produces equilibriums they refer to as “trembling hand equilibria.” Ronald Heiner (1983) suggested that rules are adopted to reduce decision errors associated with informational and computational errors. The Ester book and a prepublication version of the Heiner paper are citied in the Reason of Rules.

It bears noting that weakness of will is not a problem for “neoclassical man,” who would not be in the least tempted by short-term gains that induce great long-term losses. No matter how great the short-term advantages of intoxicating experiments may be, if they are expected to cause long-term harms greater than their benefits, there is no question about the choice that would be made by rational men and women.

The preface mentions that the book took longer to write than the other books, about 4 years, but Buchanan does not fully explain the reason. His coauthor’s wife was killed in a car accident shortly after the book project was begun (in 1994), and it took Congleton more than a year to completely reorganize (reinvent) his life and those of his three children, while attending to classes, seminars, and various time-consuming legal activities. Buchanan waited patiently.

Unfortunately, unanimity is not entirely observable, because persons who expect to be made better off often have strategic reasons to deny it, in the hope of becoming even more better off. The observable scope of unanimous agreement is smaller than the underlying reality of agreement. Buchanan thus often suggests that the test of qualified Wicksellian unanimity is the proper test in practice.

These points by themselves were not entirely novel. Uniform treatment as an institutional device for reducing losses from rent-seeking contests had long been in the literature (Congleton 1980). That generality or universality could reduce majoritarian cycles within a legislature had been suggested by Weingast and Shepsle (1981). However, no book-length generalization or detailed exploration of the issue had been attempted.

Civic equality is my term for the type of equality that Buchanan suggests is necessary for contractarian justice: “equal liberties under law” (p. 8). His remarks at the time of Rawls’ death are similar in spirit: “[Rawls’] analytical enterprise was not driven by fellow feeling, at least directly. He sought to find principles that embody justice in a society of natural equals, in the same sense of equality defined by Thomas Jefferson in the Declaration of Independence and referenced by Adam Smith in his comparison between the street porter and the philosopher.” (“Obituary: Justice among Natural Equals: Memorial Marker for John Rawls,” Public Choice [2003a] 115: iii–v.).

I had missed this aspect of Buchanan’s world view at the time and had written a chapter demonstrating that equality before the law is more necessary to sustain democratic than authoritarian regimes. Indeed, I argued that equality before the law is a necessary, although not sufficient, condition for democracies to exist in the long run. That chapter was rejected by Buchanan as incompatible with his prior work and was published separately (Congleton 1997).

Tullock credited their colleague Jacob Vining with bringing this distinction to their attention. See the Tullock appendix at the end of The Calculus of Consent. (It is interesting to note that had one read the appendices alone, one would have been inclined to suppose that Tullock was an economist and Buchanan a political philosopher; although, Tullock was a lawyer by training and Buchanan the economist of this insightful pair.) Buchanan made a similar point in The Limits of Liberty and in Economics from the Outside (2007).

The term “rules of the game” is also widely used in the new institutionalist school of thought, but was evidently adopted by that research circle well after it became central to the Constitutional Political Economy program. These research programs complement each other in many ways, and so naturally use similar models and vocabulary.

Of course, the second half of Coase’s famous paper demonstrates that Coase is also not “Coasian” in this sense. In that part of his paper, Coase shows that if transactions cost are significant (and he would argue they always are), alternative liability laws and other institutions have real and often profound effects on market outcomes. Institutions are important precisely because they reduce transactions costs. (See for example Coase 1988, ch. 1.) (Ronald Coase died at the age of 102 in early September while this paper was being written, but after this footnote first became part of the draft.).