Nobel Laureate economist James Buchanan credits his mentor, noted economist Frank Knight, with teaching him to challenge everything and leading him to "push beyond the boundaries of orthodoxy in economics."
Through his work in Public Choice, Buchanan has pushed those boundaries and challenged conventional thinking about the role of government in the lives of individuals.
Buchanan once wrote, "... I have felt, and feel, no moral obligation to promulgate my own ideas, or those of others." Despite that assertion, Buchanan's views of the political economy, spelled out in his Public Choice philosophy, have been the focus of discussion among his peers and have influenced scores of young economists ever since he published The Calculus of Consent with colleague Gordon Tullock in 1962.
In the following interview, Buchanan traces the development of Public Choice, ideas especially relevant today as governments everywhere try to redefine themselves.
Region: Most people who know your work consider The Calculus of Consent as your most important book. What was the insight that brought you to write The Calculus of Consent?
Buchanan: I think that's hard to say. In my own case it was a general sense that people who were supposed to know didn't really know what democracy was about. I started out as a regular public finance economist. Once you start in that direction, you soon come to the question of how it is that taxes and expenditure decisions and budgets get made, so you're forced to think about the political process. One of my first pieces goes all the way back to 1949 and was nothing more than asking economists to think about their political models. What model of politics are you assuming before you start talking about what's good taxation? What's good spending? I called for them to clarify their assumptions of politics. I was influenced by the Swedish economist Wicksell, who said if you want to improve politics, improve the rules, improve the structure. Don't expect politicians to behave differently. They behave according to their interests.
I picked up some of the Italians who had paid much more attention to the model of the state, the model of politics. I spent a year in Italy (1955-56). It changed my perspective on politics because I think a lot of Americans, of my generation anyway, still had a romantic view of politics. Italians, for me at least, served the function of introducing a lot of skepticism, a lot more questions. Had I not spent that year in Italy, I might not have ever really been able to come to the critical realistic view of politics as I did. All that was by way of background.
Then during the early '50s Kenneth Arrow published his book Social Choice and Individual Values (1951). That stirred up a great deal of interest, both in political science and economics. My general reaction was that the people who criticized Arrow, and Arrow himself, really didn't quite get the message in the sense that the concentration was on the fact that majority rule would not give you a political equilibrium, that you get this political cycle and so forth. My criticism basically was, if that's the way the preferences are, that's what you want to have. A democracy should not mean one majority simply ruling. It ought to be a rotation, if that's the way the preferences are. I was kind of an anti-majoritarian then and now. So my critique of Arrow, which not many people paid much attention to, got me further into thinking about these things.
Gordon Tullock came to the University of Virginia in 1958 on a postdoctoral scholarship, after having spent nine years in the U.S. Department of State. He was much more of a realist about politics, naturally, than I would have been. He started to work specifically on majority rule, influenced a good deal by Duncan Black and Anthony Downs and also to some extent by Arrow. We started working together and out of that came The Calculus of Consent (1962). While I acknowledge that it's probably considered my most important work, at the time I wrote it, and even now, I don't consider that to be as original a piece as some of the other things I've done.
Tullock and I considered ourselves to be simply taking the tools of economics, looking at something like the structure of American politics in the way James Madison had envisioned it. That is, it was clearly not a majoritarian democracy, which would be the parliamentary model (which was the ideal, at that time especially, of all the political scientists), rather it was a sort of a constitutional structure. We were the first to start analyzing the Constitution from an economic point of view. There were other people who analyzed particular voting rules, like majority voting, but we put that in a constitutional structure and provided an argument for choices among voting rules. We concentrated on that. So, in a sense, I considered us to be simply writing out in modern economic terms more or less Madison's framework of what he wanted to do, as opposed to anything new and different. It turned out that nobody had looked at it in that way.
Region: What was the greatest challenge you initially faced in the academic world when your ideas in The Calculus of Consent were first presented?
Buchanan: The political scientists naturally didn't like it. Basically, it was contrary to their standard way of looking at things. But it got some very good reviews by some political scientists. Some people, like William Riker, who became very important at [the University of] Rochester, established a whole school. He picked up on it immediately and worked closely with us in the whole Public Choice work; he had a huge influence in political science and trained a lot of very good people. So he and a few others were very sympathetic. But basically the political science community didn't accept it.
A lot of the economics community simply was not interested. They were interested then, and now, in much more technical stuff. I think gradually it worked its way in. The whole Public Choice framework spawned more interest than Black, Arrow or Downs had gone along with. In one sense—there are two books—our book and Mancur Olson's Logic of Collective Action (1965)—those two books came along about the same time and they got the interest.
After our book was published, Gordon Tullock and I recognized that there was a lot of work going on in several fields that were at least closely related. We got the National Science Foundation to give us a small grant to organize a preliminary research meeting. We had a meeting in Charlottesville (we were both in West Virginia at that time) in 1963 to which we invited all the people that we thought were working more or less in those areas. We had about 20 people. It was a very exciting two and one-half day conference in which people were simply exchanging research ideas. Riker, Mancur Olson, Vince Ostrom and Downs were there. We invited Arrow; he didn't come. Duncan Black was there, as I remember. Jack Rawls was there from philosophy. We had several sociologists, psychologists, political scientists and so forth. Roland McKean and Jerry Rothenberg from economics were there. We had quite a group. Out of that came the Public Choice Society. We didn't call it that at that time. We called it the Committee for the Study of Non-Market Decision Making. We were getting into how decisions were made outside of a private market context.
After that we organized and started up a journal. The first was called Papers on Non-market Decision Making. Tullock took charge of editing it. Then after meeting a couple of more years, Riker helped organize the third meeting. Tullock and I organized the first and second. Then we had a meeting in Chicago in 1967. At that time we sat around and nobody was happy with the title. We needed a name. Somebody came up with Public Choice, which really doesn't fit very well descriptively because a lot of people think of it as a public opinion polling thing. We get questions about that. But at least it caught on. From that time on we named the journal and the society The Public Choice Society. So that was an institutional embodiment of this that started with The Calculus of Consent. It started with that meeting. That's a little bit of background.
Region: It seems that many people now see your emphasis in Public Choice as common sense, that is, applying economics to government. Please describe your journey in making Public Choice commonplace in both the practical world of politics and in the academic world.
Buchanan: It is nothing more than common sense, as opposed to romance. To some extent, people then and now think about politics romantically. Our systematic way of looking at politics is nothing more than common sense.
People ask me how has Public Choice made a difference and how does it influence ideas. I don't necessarily place Public Choice as out front in changing a lot of ideas. But I do think that Public Choice has had a major influence: I think governments overreached themselves in the '60s, not only in the totalitarian, authoritarian regimes, but also in Western democratic welfare-state nations, represented in this country by the Great Society of Lyndon Johnson. By the early '70s people began to recognize this. They looked about them, and they saw that political programs were failing. Public Choice came along and was there to provide them an explanation—an understanding—of why politics was failing as it extended beyond certain margins. So it provided what I would call a foundation or substructure, which allowed them to interpret better what they were seeing, rather than leading the way.
Region: Public Choice economics seems to have taken hold in four or five different areas as far as I can tell—budget, monetary policy, operation of democracies, growth of special interests and constitutional framework. Can you outline the essential issues that Public Choice economists, like yourself, use to understand government policy?
Buchanan: I think it's just a way of looking at political decision structures. Take, for example, the budget policy aspects. People ask what's the best example in practice of Public Choice thinking. It's clearly the explanation of the budget deficit regime. The key to Public Choice, as you said earlier, is common sense. And common sense tells you that a politician is very much like the rest of us. A politician who's seeking office or seeking to remain in office is responsible, as he should be, to constituents. He wants to go back to a constituency and tell them that he's either lowered their taxes, or he's brought them program benefits. You plug that into politics and you have a natural proclivity of a politician to create deficits.
Then the question comes along: Why didn't we have deficits before? You see the Keynesian economic revolution gave the politicians an excuse for deficits. You give politicians half an excuse; they play out this natural proclivity. So from the '60s on we have the regime accelerating deficits. This ties into my support of the constitutional amendment as a corrective device. That's an easy example. You can also take these other aspects—regulatory policy or anything like that—and you can come at it from a Public Choice perspective.
Region: How do Public Choicers come at monetary policy? Is that a serious topic of study for Public Choice?
Buchanan: It has been studied in Public Choice, which splits itself up in subparts and separate research programs. One part might be called a Theory of Bureaucracy—how bureaucrats behave under certain constraints and incentive structures, and so forth. So we've got one strand of what you might call more positive Public Choice that has looked at monetary institutions. It looked at the behavior of Federal Reserve Boards with a very hard-nosed view.
Another research program in Public Choice with which I am more closely associated, involves the whole emphasis on the constitutional structure—on rules. We've been very critical of existing monetary institutions because they don't have enough predictability, and we have gone down the line of having more specific targeting or guidelines or some kind of alternative to a purely discretionary policy. Those are more normative studies. We're doing some work in competitive federalism: how a regime of national central banks might be better than a single central bank for Europe, for example, or vice versa.
Region: Many years ago you spoke at Spring Hill Conference Center in Minneapolis about the need for a balanced budget amendment and in recent times you have focused your attention on the same topic. Balanced budget seems to be a long-standing interest of yours and one that you pursue with some passion. What is your argument for a balanced budget amendment?
Buchanan: I remember very distinctly that Spring Hill meeting. That was one of the most delightful conference settings I've ever seen. I enjoyed that conference. I've forgotten what I talked about then, but I'm not at all surprised that it was on the balanced budget. That's an interest of mine that has gone back a long way. My first individually authored book was on public debt, which I wrote in 1958 (before The Calculus of Consent), in which I attacked the Keynesian notion about public debt, going back to classical precursors of what public debt was all about. Then I saw the Keynesian logic. As you destroy the old- time fiscal religion, you're going to have this natural proclivity toward deficits, like I said.
Then I wrote a book with a colleague, Richard Wagner, in 1977 called Democracy in Deficit, making the argument that the Keynesian destruction of the old mythology about balanced budgets would guarantee the regime that we've had. Certainly the predictions in that book have held up very well. Again, we were calling for correction. If you recognize the natural proclivity of democratic politics to generate deficits, you recognize that we did have a constitutional norm against deficits. It was basically a moral norm: It was a "sin" to create deficits prior to the Keynesian period.
If you remove that moral norm you have this natural proclivity. Then if you also buy into the theory of public debt that I had developed much earlier, that is, it does involve taxing the people who are going to be around in the future by imposing costs on them to pay off whoever happens to own the government-obligated bonds, you realize that you're going to get yourself deeper and deeper in trouble unless you introduce some kind of formal constitutional substitute for that moral norm. I came on board quite early on in favor of a balanced budget amendment, making me one of the few economists who has consistently supported a balanced budget amendment. I didn't get very far.
Personally, I'm not the type of economist who does much testifying before Congress or for political parties. I'm very, very much ivory tower. The only policy issue at all that I've been on board with is the balanced budget: the constitutional change. So I did a little bit of work during the period when they were trying to get state resolutions for a constitutional convention. Now that more of this has come up again through the Congress, I've been very supportive of it. So I would like to have seen it go through. It seemed to me that as it came nearer to reality, there was a lot of obfuscation thrown in by the opposition. I've written some pieces recently on simply trying to clarify some of that confusion. It seemed to me that a lot of smoke was thrown in just to confuse a lot of the issues about it.
Region: It appears at first glance that many Public Choice economists are politically conservative and free-market oriented. Would that be an accurate description of those academics in the Public Choice movement?
Buchanan: I think it's an accurate description—but it's an accurate description for a reason. If you take the story I've given you, if you recognize that the traditional way we looked at politics had a lot of romance in it, then Public Choice comes along and removes the romance. I think the natural outcome of that is you're going to be more skeptical about government than you would have been otherwise.
Mancur Olson, a good friend of mine, has been influential in Public Choice and objects very strongly to this argument that there is this conservative bias. There is no bias in it as such. But Mancur himself has necessarily had to look at politics differently because of that, despite the fact that his natural proclivity would be more left than mine. There's nothing inherently biased about it. It's just that the fact that if you start looking at the political sector or politics from a non-romantic view, you come to a different view on what has been traditional.
Economists traditionally have been much more pro-market and anti- politics, anti-government than the other parts of the Academy in general. But throughout the decades economists have been frustrated by the fact that they put their ideas out there and nobody pays any attention. Economists have found you can't go out there and sell the idea of a market economy very readily. You have to be sophisticated to understand it. It's difficult to sell the idea of a market economy, so economists haven't been very effective. Potentially, Public Choice, it seems to me, has been effective in a different way altogether. Public Choice does not say that the market is perfect or the market works at all. That's not part of it. But it says that politics fails. There are a lot of people out there who will recognize that politics fails and, therefore, will be in support of a market, who would never have come around to support the market in terms of the pro side. They'll see the anti-politics side, so that's how Public Choice comes in.
Region: In the past you've called for a constitutional revolution to reassess the entire spectrum of constitutional rights of individuals. In 1995, what would that mean? A balanced budget amendment, for sure. But what beyond that?
Buchanan: We're just at the threshold beginning to examine the whole structure of our institutions in a foundational sense. It's partly because the ideology that was behind a lot of the socialist thrust is gone. Partly we recognize a lot of failures. We recognize that the political or governmental sector is too large. The problem is more acute in some countries than it is in ours. Sweden, for example, is in really bad trouble. They've over-extended the welfare state. They don't know what to do. They're failing. They're falling behind. But it's true in all the major countries.
There's beginning to be a fundamental evaluation of our institutions. You saw it in this country with the 1994 elections and the questions that people are raising about values. How this is going to play out is very difficult to see now. Just today I got an invitation for a lecture series organized for next year at Michigan State. The whole question of big government is in the air. Again, the balanced budget amendment is a case in point. When you get down to the crunch and try to do something specifically, then you run into all the opposing interests.
Another good example is this so-called Conference of States. The idea was to have a meeting in Philadelphia of the governors of all states plus a bipartisan group of leading legislators from each state. They were to come to Philadelphia and meet for the first time since 1790. The states would meet quite separately from the federal government. The idea behind this—I know because I was invited to be on the academic advisory committee—was to have these governors meet and have a discussion about ways and means through which we could genuinely get some power evolved from the central government back to the states. But the plan was killed by agitation not from the left but from the right. Ironically, the whole thrust was to try to reduce political power. Instead, the idea was killed completely, just like the right was finally influential in part of killing the balanced budget amendment.
Region: Given this agitation and the new mood, I don't think people can call you "mildly subversive" anymore. Would you say that's right? Or are you still mildly subversive?
Buchanan: I think that's a very perceptive point you make. I think 20 years ago clearly I would have been. Right now I don't think so. I'm behind the curve now.
Region: What is the Virginia School and what was your role in its evolution?
Buchanan: That appellation Virginia School was put on us by Mancur Olson in a speech he gave. Once we got it, we were perfectly happy to have a specific designation. It does have some embodiment. I mentioned the one meeting. I can go back further than that. When Warren Nutter and I joined the faculty of the University of Virginia in 1957, we had already discussed the fact that we needed some place, some concentration, some research program that would be more of a return to the emphasis of classical political economy and away from the modern formalism. When we got that opportunity we set up what we called, at that time, the Thomas Jefferson Center for Political Economy at Charlottesville, University of Virginia. We set up a graduate program. We brought in some distinguished visitors and got some good graduate students. So we made an impact on the profession in terms of making the Virginia product a little different, a little unique. That was kind of a political economy emphasis, looking at institutions, looking at structure. Out of that emerged Public Choice. Warren Nutter himself never would have gone in that direction, but Tullock came.
Then Tullock and I set up this little group that became the Public Choice Society out of that Virginia emphasis. So that started also in Virginia. Then we shifted away. I went to UCLA and Tullock went to Rice, but we came back and went to Virginia Tech where Charles Goetz was. We set up the Center for Study of Public Choice there and called it Public Choice—again a Virginia orientation. About that time Mancur called it the Virginia School. Then at VPI [Virginia Polytechnic Institute] in Blacksburg we began to get a lot of visitors coming from all over the world to spend a few months or a year with us. That's how it centered on a Virginia emphasis—simply locational, historical. That's where the work was done. It does have a different methodological flare in a certain sense, more emphasis on constitutional structure, clearly a Virginia characteristic. Although work at Virginia is also done in empirical public choice, that's more characteristic of Chicago—the Stigler, Becker, Peltzman type work. We do some of that. Bob Tollison here does a lot of that. But basically ours is a slightly different emphasis.
Region: If you were advising the Federal Reserve, what would you say are the unsolved economic problems of the day?
Buchanan: It's not the Federal Reserve's role to be solving the economic problems of the day. I think the Federal Reserve has enough to do, and it should target itself much more carefully toward keeping the value of the monetary means stable and quit doing other things.
As far as the problems of the day, our political sphere and the governmental sector are too large. This not only applies to our country. We need somehow to get back to where our government limits itself much more toward things it can do and not try to do everything for everybody. That goes back to the constitutional revolution question.
That ties in with my future work. What I'm doing now is trying to finish a book. It's different from The Calculus of Consent—one way of interpreting that book would be as an attack on majoritarian democracy. Let's accept that public attitudes are such that majority rule is going to be equated with democracy. We're going to have to live with majority rule. What can we do constitutionally here to rein in some aspects of government or the worst aspects of government?
This new book is an argument, both analytical and with applications, for trying to extend the generality principle into politics. This gets back to what I commented about a while ago. It seems to me that far too much of our politics is favorable treatment or unfavorable treatment for particularized groups. If we could somehow introduce into politics the requirement that would be analogous to the rule of law, that is, don't treat one group differently from another group. That has a lot of implications. That would not necessarily mean we'd have much smaller politics or government. It would mean there'd be a quite different characteristic of government.
Recently, this analytical argument (and it's a switch from where I was 10 or 15 years ago) has led me to come out very strongly in support of a flat tax—every dollar of income being taxed—as opposed to a progressive tax. This ties in with an area of Public Choice that we haven't mentioned because I have not been directly involved in it. Gordon Tullock has been. If you have discriminatory politics, it invites a tremendous amount of investment, it wastes resources in rent seeking in trying to get particular favors, either a tax exemption for your industry or a particularized spending program for your district or for your industry or your profession or whatever. We moved a little bit away from that in the 1986 Tax Reform Act. We were all enthusiastic about that. But Public Choice theory predicted that the provisions wouldn't last long. Now they're tearing up the 1986 act; they have been tearing it up ever since.
The normative thrust of my current work is to try to push the generalization principle to the maximum extent possible, that is, so you don't have particularized exemptions. One person gets it, everybody gets it. It cuts in favor of something like a flat tax. It cuts against means testing. The huge pressure now in all these welfare programs is going to be toward means testing. By the time you, as a professional, qualify for social security it's likely that you won't get anything, because it will be means tested even more than it is now. But that's going in the wrong direction. That's introducing more discrimination in democratic politics. My point is that discriminatory politics simply won't work with majority rule. The only way majority rule can work, can be plausibly said to be pushing the general interest, is you require that everything that is done politically be general. That's where I'm coming from.
Region: I understand that outside of your academic life you are also a farmer?
Buchanan: I'm not really a farmer. I grew up on a farm in Tennessee and did a lot of farm work as a boy. But I didn't have any real nostalgia for the farm. That was not the reason for getting back into it. But I think I was perhaps more affected by the 1960s than most of my colleagues. I really did think the world that we knew was falling apart. I was very upset by the behavior of the Academy, which I was a part of, especially in California. When I came back to Blacksburg, to the Virginia mountains, I began searching around for some space, privacy. I like space around me. I bought this century-old log cabin and started fixing it up and added to it and so forth. I kept buying more land, more land, more land. I found out something about my utility function as I did that, because I found out that every step I took toward genuine self-subsistence really gives me a big charge. If I can build a fire in my wood stove and don't have to depend on electric heat if we have a power outage, then I'm that much happier. Or if I can go across the street to the spring and get a bucket of water as opposed to having an electric pump to the well, that gives me a charge. Or if I grow my own vegetables or pick my own berries, which I'm doing now. This year there is a good blackberry crop. I became more and more interested in having at least a backup, so self- subsistent existence really did give me a lot of utility. I never got involved in farming per se. What I do now is I grow a good deal of my own vegetables and fruits, and we freeze and can them to some extent. So I kept buying more and more land and now have about a square mile. It's mountain land and some pastures. I run some cattle on parts of it. I let another man do the operating part. We have some hay fields, but no commercial aspects.
Region: You had once written about yourself, "I hope that I seem what I think I am: a constitutional political economist who shares an appreciation for the Judeo-Christian heritage that produced the values of Western culture and institutions of civil order, particularly as represented in the Madisonian vision of what the United States might have been and might still become. Am I grossly naive to think this definition is sufficient unto itself?" I wonder if this is still the way it is.
Buchanan: I think that summarizes it still.
Region: Thank you, Mr. Buchanan.
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