The Nobel Prize

James M. Buchanan (b. 1919)

James Buchanan was born in Murfreeboro, Tennessee, USA in 1919. He studied at Middle Tennessee State College where he received his BA in 1940, before obtaining an MS from the University of Tennessee in 1941 and a PhD in economics from the University of Chicago in 1948. In the early part of his career, Buchanan taught at the University of Tennessee (1948–51) and then Florida State University (1951–55). In 1956, following a research year in Italy as a Fulbright Scholar, Buchanan became Professor of Economics, and director of the Thomas Jefferson Center of Political Economy and Social Philosophy, at the University of Virginia. While at Virginia in the early 1960s he co-founded, with his colleague Gordon Tullock, the Public Choice Society and the academic journal Public Choice. In 1968 Buchanan moved from the University of Virginia to the University of California, Los Angeles (UCLA). After a year at UCLA, he became in 1969 Professor of Economics and general director of the Center for Study of Public Choice at Virginia Polytechnic Institute in Blacksburg. In 1983 he moved the Center to George Mason University, Fairfax, Virginia where he took up a post as professor and has remained ever since. Buchanan is currently advisory general director of the Center for Study of Public Choice and Distinguished Professor Emeritus of Economics at George Mason University, and University Distinguished Professor Emeritus of Economics and Philosophy at Virginia Polytechnic and State University.

Buchanan was made a distinguished fellow of the American Economic Association in 1983, served as president of the Mont Pelerin Society from 1984 to 1986 and received the Frank Seidman Distinguished Award in Political Economy in 1984. In 1986 he was awarded the Nobel Memorial Prize in Economics ‘for his development of the contractual and constitutional bases for the theory of economic and political decision-making’ (Nobel Foundation, 2004).


Buchanan’s main contribution to economics involves his work as one of the leading pioneers and founders of public choice theory, a research programme concerned with the application of economics to the analysis of ‘non-market decision-making’. Also sometimes referred to as the ‘new political economy’, the programme, which lies at the interface of economics and political science, has changed the way political decision making is analysed and had a marked influence on the development of public economics. Although Buchanan has had many frequently cited articles published in top-ranked journals (for example, Buchanan, 1949; 1954a; 1954b; 1959), he is best known for a series of influential books he has written or co-written since the late 1950s, many of which have been published in translation.


Throughout his long and distinguished career, Buchanan has acknowledged that the three constitutive elements that provide the foundations of modern public choice theory – methodological individualism, homo economicus, and politics-as-exchange – can be found in the 1896 dissertation, ‘A New Principle of Just Taxation’, written by the Swedish economist Knut Wicksell (1851–1926) which he translated in the early 1950s. These elements were developed by Buchanan and his colleague Gordon Tullock in their landmark book published in 1962 entitled The Calculus of Consent: Logical Foundations of Constitutional Democracy. In their seminal study, Buchanan and Tullock extended the model of individual rational ‘utility-maximising’ behaviour assumed in the private sector marketplace to the public sphere. The assumption that politicians, legislators and bureaucrats behave in the public interest was replaced by that of self-interested rational behaviour. However, as Buchanan (1987) has been careful to point out in his Nobel Memorial Lecture, ‘this assumption does not place economic interest in a dominating position and it surely does not imply imputing evil or malicious motives to political actors’ (p. 245). While the approach does not deny that people may act to some extent in the public interest, it recognises that individuals also behave in a self-interested manner and respond to incentives. Furthermore, in Buchanan’s (1987) view, ‘politics is a structure of complex exchange among individuals, a structure within which persons seek to secure collectively their own privately defined objectives that cannot be efficiently secured through simple market exchanges’ (p. 246).


A central contribution of The Calculus of Consent was the identification of, and distinction between, two levels of collective decision making: the pre-constitutional level and the post-constitutional level. The former establishes the rules or constitution (‘constitutional politics’) that define and set limits on what can and cannot be done via, at the post-constitutional level, ‘ordinary politics’. Buchanan and Tullock recognised that in a democratic society, majority voting may be chosen by citizens as a political medium so long as the rights of minorities are protected and there is generalised consensus on the constitution. The political process is viewed as ‘a means of cooperation aimed at achieving reciprocal advantages’ (Nobel Foundation, 2004). Consenting individuals pay taxes in return for government goods and services and rely on the government to define the constitutional rules as to what types of goods and services, for example, are provided collectively. Given that the results of the political process depend on the so-called ‘rules of the game’, the importance of the choice of constitutional rules is paramount. In other words, as the outcomes of policies are largely determined by the choice of constitutional rules, emphasis is given to the importance of the design of such rules and constitutional reforms.


Buchanan has applied the analysis developed with Tullock in The Calculus of Consent to a wide range of issues in public economics. Among his books with important insights for this field of study are: Public Principles of Public Debt (1958); Fiscal Theory and Political Economy (1960); Public Finance in Democratic Process (1967); The Demand and Supply of Public Goods (1968); The Limits of Liberty (1975); Freedom in Constitutional Contract (1978b); The Power to Tax (Brennan and Buchanan, 1980); and The Reason of Rules (Brennan and Buchanan, 1985). The last book, co-written with Geoffrey Brennan, argues forcefully that economists should devote more attention to deriving normative procedures for establishing rules, and considers a methodological and analytical framework for their creation. A recurrent theme within Buchanan’s work is an attack on many of the central premises that underlie public economics. For example, given his notion that opportunity costs are basically subjective, he departs from the traditional doctrine of marginal cost pricing of public utilities (see Buchanan, 1969).


Buchanan (Buchanan and Wagner, 1977; Buchanan et al., 1978a) has been extremely critical of traditional Keynesian economics which treats the government as an exogenous element enacting macroeconomic policies aimed at maximising social welfare. Instead the government is viewed as an endogenous element within the politico-economic system where policy makers act in a self-interested manner, rather than in the public interest, by manipulating the economy for electoral purposes. In Buchanan’s view, one undesirable consequence of this is a persistent bias towards large government deficits and public debt, the burden of which is largely shouldered by future generations. As noted, given this viewpoint, attention is focused on the rules of the game and the choice of the appropriate constitution. For example, Buchanan has been a long-time supporter of a constitutional rule change for a balanced budget. His 1977 book Democracy in Deficit, co-authored with Richard Wagner, has acted as a catalyst for much subsequent research on political business cycles.


Buchanan is best known for his pioneering interdisciplinary work which has made him one of the leading founders of the public choice school. By applying economics to politics and studying the interaction of economic and political forces, he has changed the way economic and political decision making is analysed. One legacy of this continuing research programme is that public choice theory is now seen as an established subdiscipline within mainstream economics. In addition to his contributions to economics, Buchanan has greatly influenced the direction of contemporary political theory and is widely acknowledged as one of the great scholars of liberty of the twentieth century. The Collected Works of James M. Buchanan (2002) have been brought together in a 20-volume set that includes ten of his monographs (including The Calculus of Consent and The Reason of Rules) and his most important journal articles, papers and essays covering a wide range of topics (including his views on philosophical issues, especially problems of moral science and order).


Main Published Works
(1949), ‘The Pure Theory of Public Finance: A Suggested Approach’, Journal of Political Economy, 57, December, pp. 496–505.
(1954a), ‘Social Choice, Democracy, and Free Markets’, Journal of Political Economy, 62, April, pp. 114–23.
(1954b), ‘Individual Choice in Voting and the Market’, Journal of Political Economy, 62, August, pp. 334–43.
(1958), Public Principles of Public Debt: A Defence and Restatement, Homewood, IL: Richard D. Irwin.
(1959), ‘Positive Economics, Welfare Economics, and Political Economy’, Journal of Law and Economics, 2, October, pp. 124–38.
(1960), Fiscal Theory and Political Economy: Selected Essays, Chapel Hill, NC: University of North Carolina Press.
(1962), The Calculus of Consent: Logical Foundations of Constitutional Democracy (with G. Tullock), Ann Arbor, MI: University of Michigan Press.
(1967), Public Finance in Democratic Process: Fiscal Institutions and Individual Choice, Chapel Hill, NC: University of North Carolina Press.
(1968), The Demand and Supply of Public Goods, Chicago: Rand-McNally.
(1969), Cost and Choice: An Inquiry in Economic Theory, Chicago: Markham Publishing Co; reprinted by University of Chicago Press, 1979.
(1975), The Limits of Liberty: Between Anarchy and Leviathan, Chicago: University of Chicago Press.
(1977), Democracy in Deficit: The Political Legacy of Lord Keynes (with R.E. Wagner), New York: Academic Press.
(1978a), The Consequences of Mr. Keynes (with R.E. Wagner and J. Burton), Hobart Paper 78, London: Institute of Economic Affairs.
(1978b), Freedom in Constitutional Contract: Perspective of a Political Economist, Austin, TX: Texas A&M University Press.
(1980), The Power to Tax: Analytical Foundations of a Fiscal Constitution (with H.G. Brennan), Cambridge: Cambridge University Press.
(1985), The Reason of Rules: Constitutional Political Economy (with H.G. Brennan), Cambridge: Cambridge University Press.
(1987), ‘The Constitution of Economic Policy’, American Economic Review, 77, June, pp. 243–
50.

(2002), The Collected Works of James M. Buchanan, 20 vols, Indianapolis, IN: Liberty Fund, Inc.
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