I knew James Buchanan personally, largely through the Mont Pelerin Society, in which he served a term as President. He was born on October 3rd, 1919, one hundred years ago. He lived to be 93 years old, and changed economic thinking. He was awarded the Nobel Memorial Prize in Economic Sciences in 1986.
He went through university in Tennessee, his home state, by living at home and working on the farm. His war years were spent under Admiral Chester Nimitz in Honolulu, after which he went to do a doctorate at the University of Chicago under Frank Knight, who also taught Milton Friedman and George Stigler. Buchanan had not realized how free market-oriented the economics department there was, but it converted him from being a youthful socialist to becoming a fervent and lifetime advocate of market economics.
He is most famous for the book he co-authored with Gordon Tullock, “The Calculus of Consent,” which introduced Public Choice Theory to the world. Until then, most economists had blithely supposed that politicians and civil servants worked dispassionately for the public good, and could be relied on to bring corrections when needed to instances of market ‘failure,’ or where markets failed to deliver what were thought desirable outcomes.
Not so, showed Buchanan and Tullock. Their research and analysis showed that politicians and bureaucrats behaved like other economic players, seeking to maximize their self-interest. This need not be economic. Politicians might act to increase their chances of re-election or promotion, and bureaucrats might behave so as to increase the size and importance of their department. But the notion of dispassionate, public-spirited behaviour was not supported by the evidence.
The principles that govern behaviour in economic settings also apply in fields such as voting, lobbying or campaigning. People’s first instinct, Buchanan showed, was to make decisions that accorded with their own self-interest. Actions that are alleged to be “in the public interest” usually conceal the self-interest of those advocating them. The claim might be to help others, but the covert reality is in fact to help those making the decisions. Buchanan argued that understanding this fact enabled one to predict the behaviour of voters and politicians.
This rather displaces the pretended idealism of ‘public service,’ and replaces it with a rational self-interest. Most people do not like their alleged motives being undermined by this unforgiving analysis, but it proves a good tool for predicting outcomes. Politicians who advocate low rents for tenants of public housing might claim to favour the interest of those tenants, but in reality they are often bidding for the votes of those tenants in order to augment their own power.
Buchanan’s argument influenced the founding of the Adam Smith Institute. His analysis was largely a critique of the behaviour of legislators and public servants, but we speculated whether there might be a creative counterpart to that critique. Could we devise policies that would flow with the self-interest of politicians and civil servants, instead of being thwarted by them? Could policies by constructed such that their success would help politicians to be re-elected, and public servants to be promoted?
Promoting and proselyting free market ideas is worthwhile, of course. But we thought something else was needed - policies constructed to enable those free market ideas to be applied in practice, and in ways that work to the advantage of the legislators and public servants who might implement them. Building on James Buchanan’s analysis, a new type of think tank opened its doors.