[From the Austrian Economics Newsletter, Fall 1987.]
James McGill Buchanan is the founder of the New Political Economy called Public Choice. He had devoted his 40-year career to applying the economic tools of methodological individualism and subjectivism to the study of government and political decision making. He has made important and pioneering contributions in the areas of Constitutional Economics, public deficits and debt, the subjective nature of cost, public resource allocation and political theory. In recognition of his many contributions he was awarded the 1986 Alfred Nobel Prize in Economic Science.
Professor Buchanan, currently teaching at George Mason University, received his doctorate from the University of Chicago in 1948 where he was a student of Frank Knight. In 1957, he and Prof. Warren Nutter founded the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy at the University of Virginia. Buchanan and Prof. Gordon Tullock established the Center for the Study of Public Choice and the journal, Public Choice at Virginia Polytechnic Institute in Blacksburg, Virginia in 1969. In 1982, both Buchanan and the Center relocated at George Mason University in Fairfax, Virginia.
Buchahan has authored or co-authored a prodigious 23 books. The Calculus of Consent written with Gordon Tullock, formed the foundation of Public Choice theory. Cost and Choice and L.S.E. Essays on Cost (edited with G.F. Thirlby) are influential “classics” on the subjective notion of costs. His work on government deficits and debt was capped off with Democracy in Deficit: The Political Legacy of Lord Keynes written with Richard Wagner. Also to his credit are over 300 articles and contributions to books. The following interview was conducted by Austrian Economics Newsletter editors Mark Thornton and Sven Thommesen earlier this year during Professor Buchanan’s visit to Auburn University.
AEN: Professor Buchanan, congratulations on being awarded the Nobel Prize in Economics.
Buchanan: Thank you. It is an honor that I did not expect. I had heard rumors last year that I was being considered for the Prize. However, when it was awarded to Sir Richard Stone, a man who had been retired for many years, I gave up hope of ever winning the Prize.
AEN: People have often labeled your work “normative.” Could you give us your thoughts on striking the balance between truth-seeking and advocacy?
Buchanan: I have never been especially concerned about making a sharp dividing line between what is positive and what is normative. I don’t consider myself a scientist whose task is discovering a reality that somehow exists independently of me. The model of hard sciences is not at all appropriate for economics. There is an important distinction to be made between taking an ideological position and then trying to make arguments to support that position, and on the other hand, working out the consequences of ideas and coming to an ideological position.
People do sometimes interpret my work as always being in defense of liberty. But it is less a preconceived notion and more a result of my methodology. It’s analogous to an artists that only knows and uses red paint. You should not be surprised when his paintings come out in various shades of red. Mythological individualism characterizes everything that I’ve done because I simply don’t know how to proceed with anything else, as if I only had red paint. Another artist might consciously decide to create a red painting so he goes out and buys red paint. But that is an entirely different approach.
AEN: You have made several important contributions in the area of government deficit finance. What do you think of Robert Eisner’s (recently elected President of the American Economic Association) recent work on government deficits?
Buchanan: The work itself is rather confusing. What is clear, however, is that he is an unreconstructed Keynesian and starts from a position of Keynesian advocacy of government deficit financing. He argues that deficits are not really so enormous, if we use his measure. This is a very good example of how data can be manipulated to support and prove anything. And it’s also very good evidence that econometrics doesn’t mean much.
Professors Leland Yeager and Roger Garrison have pointed out that it is insidious to use inflation as a means to argue that the deficit is not very high. You can always totally eliminate the deficit by printing enough money. By confiscating the value of assets from people who hold dollar claims you could argue that inflation has lowered the “real” value of the deficit, but it seems to me just perverse and extreme to do so.
AEN: There is a wide spectrum of subjectivism from mainstream orthodoxy to Shackle and Lachmann. Where would you place yourself on the spectrum?
Buchanan: Well, I’m certainly much closer to Shackle than I am to the mainstream. I’ve been tempted to go completely along with Shackle and become a very radical subjectivist. But I recognize that if you go all the way down that road you end up with a very nihilistic position. I’m somewhere between von Mises and Yeager on the one hand and Shackle on the other. The person who comes closest to my methodological position is Jack Wiseman.
AEN: Speaking of radical subjectivism, what do you think of the prospects of hermeneutics in the realm of economics?
Buchanan: People I respect a great deal from the German tradition, who know and work in the hermeneutics literature, are very negative on what it can offer economics. I have met some very capable people in interpretive philosophy and they do have a very convincing critique of modern science and in particular economics. But in a way, it’s very much like Shackle, if you go too far you end up with nothing. It’s not a viable independent research program.
AEN: Do you consider yourself an Austrian economist?
Buchanan: I certainly have a great deal of affinity with Austrian economics and I have no objections to being called an Austrian. Hayek and Mises might consider me an Austrian but surely some of the others would not.
AEN: You have become famous by extending economic thinking into the political arena. Other economists are also now involved in some very non-traditional areas such as experimental economics and sportometrics. Is this economic imperialism, as members of other disciplines charge?
Buchanan: Economics have moved into spheres that were previously barren, analytically and intellectually. Political Science was analytically empty before we started talking about Public Choice. The criticism leveled at Public Choice is that economic motivations have been elevated to a role of primary central importance. Well, it need not be that at all. We argue that economic interest is an important consideration of everybody who participates in a choosing role. The challenge of those who critique Public Choice is to come up with another model.
AEN: You must be very excited to see the debate on monetary constitutions growing. What would you like to see the monetary constitution look like?
Buchanan: I think we need some monetary constitution, but the choice of which one in particular is less important. If you could, in fact, have a gold coin system — pure and simple — that might be best. I confess that I simply cannot understand the Yeager-Greenfield BFH System. I have tremendous respect for Leland Yeager so there must be more to it than I have understood. Some argue that we are gradually evolving towards his system right now. Given the place we are now and the difficulty of making dynamic changes, I would prefer a commodity bundle system or a constant purchasing power dollar.
AEN: What about the problem of incentives for federal bureaucrats, and the tremendous information problem involved with the constant purchasing power dollar schemes?
Buchanan: You can design an incentive structure by indexing the salaries and pensions of the members and employees of the Federal Reserve System. Fix the salaries and pensions in nominal dollars, which would prevent them from inflation and use double indexing, so that they would lose from deflation as well.
The big problem with any of these systems is credibility, and of course, that’s the big virtue of having some kind of market money like a commodity bundle or gold. It builds in predictability. However, you can still have the credibility problem because you can’t be sure if government will leave the system alone. They have always interfered in the past. That’s also a problem with Hayek’s competitive money.
AEN: What do you see as good developments in economics?
Buchanan: I think there are many very productive developments such as the new-institutional economics, law and economics, property rights, public choice, the new economic history, and the revival of Austrian economics. All of these areas are complementary and all, in a sense, can be seen as an attack on the conventional orthodoxy.
AEN: In the past you have said that modern economics is without any ultimate purpose or meaning. Has your opinion on that changes?
Buchanan: I have been quoted as saying that economics lacks passion. In the last several decades economics has taken a scientistic, econometristic, and formalistic turn. As a result, the economics profession has been attracting students who are not driven by an underlying passion to use the science of economics for anything except intellectual tools and exercise. In my generation people who went into economics had a real passion to save the world. We were all socialists, but some of us became converts or zealots of the market order, individual liberty, and libertarianism.
AEN: Who were the influential people in your intellectual life?
Buchanan: Frank Knight was very influential as a teacher, while Knut Wickesell’s Finanztheoretische Untersuchungen (A New Principle of Just Taxation), had a tremendous impact on my career. I was not as directly influenced by Mises because I was exposed to him quite late. When I was a graduate student nobody even mentioned Mises, although Hayek’s Road to Serfdom had just been published; Hayek was notorious in a sense.
I didn’t become acquainted with Mises until I wrote an article on individual choice and voting in the market in 1954. After I had finished the first draft I went back to see what Mises had said in Human Action. I found out, amazingly, that he had come closer to saying what I was trying to say than anybody else.