Sunday, February 3, 2013

Further Thoughts on James Buchanan

I wrote earlier about the death of James Buchanan and how I have read him more in recent years than I had earlier in my career.  I have read a lot of his work since his death, including two books--PUBLIC PRINCIPLE OF PUBLIC DEBT and DEMOCRACY IN DEFICIT: THE POLITICAL LEGACY OF LORD KEYNES (writen with Richard Wagner). While I was getting my Master's degree, I took a public finance class in which we used Buchanan's THE DEMAND AND SUPPLY OF PUBLIC GOODS as the text. Much of his writing was in the public finance area. However,  he is known more for helping create public choice.  I checked a couple of public finance textbooks as did my colleague, Sarah Estelle, who teaches public finance. It was interesting to see that Buchanan is hardly cited in them, and when he is, it is on a topics related to public choice rather than "pure" public finance.  The exception is a public finance book I have that was written in German and for the German market.  Buchanan is cited a lot, including his pure public finance work.

In a way, it is incorrect to separate public finance and public choice in Buchanan.  One of his first articles is, "The Pure Theory of Government Finance: A Suggested Approach," published in THE JOURNAL OF POLITICAL ECONOMY in 1949.  In the article, Buchanan says that the pure theory of government finance can be built upon one of two foundations--the "organismic" theory of the state or an "individualistic" theory of the state.  The organismic theory sees the state and all individuals in society as a single organic entity while the individualistic theory views the state as the sum of the individual members of society acting  in a collective capacity.  A theory of government finance that is built upon the first theory of the state may be totally inappropriate for the second theory of the state.

One place where Buchanan argued that this difference is important is in the treatment of public debt.  The modern approach is Keynesian, and says public debt is very different from private debt and public debt is not borne by future generations.  This may be appropriate if the state is "organismic," but inappropriate if the individualistic theory of the state is used.  A key reason is that those voting today, when confronted with choices that either increase government spending on popular programs or reducing taxes, and funding either by debt, will be more popular since the current generation will not bear the full costs of their decisions.  It is hard to refute his claim when examining public debt levels in the U.S. and Europe once Keynesianism became orthodox.

The arguments in this article suggest that Buchanan never saw a distinction between public finance and public choice.  Theories related to govenrment must pay some attention to institutions otherwise one would assume government actions are similar whether under Hitler or Stalin, or under representative democracy or Athenian democracy.  In some areas of economic analysis, pure theory can abstract from institutions, but surely not when trying to analyze actions of governments.

I think Buchanan is still worth reading and plan on continuing to do so.

No comments:

Post a Comment