James Buchanan, the Nobel Prize Winner (Post -3)

James Buchanan is the cofounder, along with Gordon Tullock, of public choice theory. Buchanan entered the University of Chicago’s graduate of economics as libertarian socialist and later converted to free market theorist.

Buchanan converted to free market after reading an article in Germany by the Swedish economist Knut Wicksell. Wicksell wrote an article in 1896 stating that taxes and governments that only approved unanimously can be justified. He continued and argued that taxes used to pay for programs must be taken out of those who benefited from those programs. This assumption by Wicksell contradicted with the general convention that held in the 1940’s which there need be no connection between what a taxpayers pays and benefits they received. This mainstream view is still alive today.

Buchanan kept thinking along Wicksell’s line and translated the article into English. Out of this, Buchanan coauthored a book titled The Calculus of Consent and showed that Wicksell’s unanimity requirement unworkable in practice. They suggested a modification to the unanimity and called the new rule as “workable unanimity.” Buchanan and Tullock along Down’s Economic Theory of Democracy, helped to start the field of “Public Choice.” Buchanan with Gordon Tullock started a new academic journal called “Public Choice.” Buchanan also started another new academic journal, “Constitutional Economics.”

Buchannan spent most of his academic life in Virginia, firs at University of Virginia; then, at Virginia Polytechnic Institute and most recently at George Mason University. In 1969, Buchanan became the first director of the Center for the Study of Public Choice. Buchanan was president of Southern Economic Association in 1963 and the Western Economic Association in 1983 and 1984, and vice president of the American Economic Association in 1971. James Buchanan was awarded the 1986 Noble Prize in economics for “his development of the contractual and constitutional bases for the theory of economic and political decision making.”

In his Public Choice Theory, Buchanan expanded the “invisible hand” theory by Adam Smith to the politicians, bureaucrats, and the voters. Adam Smith stated that the “invisible hand” is the engine for economic growth. That is self-interested individuals use all possible means to compete and satisfy the public to gain more out of their services and products. Along this process, these self-interested people serve consumers at best independent of their purposive actions of the economic actors. Buchanan expanded this theory and politicians, bureaucrats, and voters are no different than those self-interested individuals in market place and only work for their self-interest. That is why politicians avoid what they promised during their campaign and serve the powerful corporate lobbyists. 

Politician come to the understanding that most voters don’t pay attention what happens in Capitol Hill. On the other hand, organization like the AARP and big corporations pay a great attention via their lobbyists, and politician can’t stand against these big players. Bureaucrats also want to become bigger and bigger by increasing their agency’s budget and influence to their own interest. Voters also avoid voting since it cost them more than the benefits they received. Buchanan suggested no matter where an individuals’ setting is, they all motivated by their own self-interest.