James Buchanan – In Summary – Life is a Random Draw

It is rare that an author puts the summary of his subject matter at the beginning of the introduction of the book. It’s what David Reisman does in his 2015 book titled James Buchanan (part of the Palgrave Macmillan Great Thinkers in Economics Series.)

At the top of my list of the great in economics, I put Buchanan, Hayek and Mises. Their works have informed my understanding of economics. The sad fact is that it was only after I finished my formal training in economics that I began to read them. Better late than never, though.

Back to the book by Reisman. Since I am familiar with Buchanan’s work, I found the summary concise and accurate. I realize that it may not mean much to someone who is not familiar with Buchanan’s ideas. But here it is, for the record.

Begin quote:

In summary, it is like this. The good society must be built up from the revealed preferences of unique individuals who feel a need to register their choices. God has been dead for a century. Truth is tested by agreement. Efficiency is tested by agreement. Justice is consensus. Fairness is the rational calculus of the loss-averting one-off when situated behind a thick veil of fog.

Entrepreneurial imagination weaves unanticipated skeins out of uncertain unknowables. The market is a disequilibrium process of exploration and discovery. Procedures alone and never endstates may be said to be economic. Social interaction is collective choice. Unanimity is the sole test of optimality. Utility like opportunity cost is all in the mind.

Human nature is nasty and brutish. Anarchy is the jungle. Leviathan is the Gulag. In between there are the rules. Formal and informal constitutions ensure that the rational and the self-seeking will strike bargains and not one another. Politicians and bureaucrats, neither omniscient nor beneficent, are as short-horizoned as any other merchants. Choices in the public sector are made not by the State qua State but by individuals qua individuals. Politics must be constrained by multi-period rules lest the nasty and the brutish bribe their voters with quantitative easing and deficit finance.

This book is about the autonomous and the impartial, market valuation and methodological individualism. It is also about student activists, itinerant pragmatists, discretionary Keynesians, arrogant interventionists, the wasteland of mathematical economics and the special pleading of vested interests. It is about the economic and social philosophy of James Buchanan. Buchanan was a serious-minded moralist. He recognised that things had gone wrong. He made it his mission to put them right again.

This book is about James Buchanan. Divided into 16 chapters, it is the story of individuals, agreements, equity, evolution, operational rules, constitutional rules, moral decay, moral regeneration, Keynesian economics, history-to-come and free market exchange. Buchanan was awarded the Nobel Prize for Economics in 1986. It was an unconventional choice. Buchanan was an ascetic and a puritan who had little time for disciplinary boundaries and even less for purposeless toys. His economic and social theories are best understood as the soul-searching of a secular preacher from the hell-fire Bible Belt who believed that he had a duty to put things right.

James McGill Buchanan was born on 3 October 1919 in Murfreesboro,Tennessee. He grew up on the family farm where he milked the cows before leaving for school.

End quote.

Let me explain what that bit — God has been dead for a century — means. Buchanan stressed the fact that individuals have the responsibility of discovering for themselves the rules which they were going to subject themselves to; that there was no supra-individual entity with omniscient and omnipotent powers that would hand down commandments for people to follow; that the good society was the creation of individuals.

In the past, people used to believe that some divine entity created and maintained society through design, and later people believed that the state (government) was the all-knowing, omni-benevolent entity that was in charge. Buchanan said no: the politicians and bureaucrats were people just like the rest of us, and they too had cognitive limitations and were motivated by self-interest like the rest of creation. Decisions are made by individuals, not collectives.

“Choices in the public sector are made not by the State qua State but by individuals qua individuals.”

Buchanan insisted that it was all about exchange. Economics was not about allocation of resources or maximizing some social utility function or about equilibrium in markets. Instead it was about people making deals. It is about rules that govern exchange. At the top are rules about making rules: the constitution. Reisman puts it beautifully.

“Formal and informal constitutions ensure that the rational and the self-seeking will strike bargains and not one another”

Trade among people creates prosperity, the exact opposite of what is achieved by conflict. In summary, Reisman is good at explaining Buchanan. Worth a few readings.