Virginia Political Economy: James Buchanan’s Journey

This constitutional project required both efforts to unearth the governing dynamics of alternative institutional arrangements and the educational effort to prepare future scholars with the necessary intellectual background to engage in the ongoing conversation. Buchanan was identifying the misdirection that public economics and public finance were going in the post-World War II reconstruction of the discipline. Economics had adopted a utilitarian and elitist presumption which was comfortable with the notion of governing elites acting for the good of society. Government was seen as a corrective, policy was a tool to achieve ideal outcomes, and economics was the science of administration that would aid in that task. Buchanan was uncomfortable with that set of presumptions from the start. Instead, he saw the need for the examination of the institutional infrastructure within which policy decisions were to be conceived and implemented.

In the first major publication of his career, Buchanan argued that economics cannot be divorced from political philosophy. Before we can decide how to finance government activity, we must first determine what activities are to be in the domain of the state. We must first have a theory of the state. Buchanan rejects the position of some classical economists, such as John Baptiste Say, that state activity is always unproductive. He sees the benefits of collective action of the state, but Buchanan is also aware of the dangers of the state. Throughout his career, he wrestled with the question of how the protective and productive state can be empowered, while constraining the predatory state from emerging and leading to democratic degradation.

In the late 1950s, Buchanan found the opportunity to promote his scholarly dream and to prepare the next generation to continue in this research vein. As Buchanan (1987) recalled it:

• … in early 1957, Warren Nutter and I found ourselves in a position to actuate the idea we had discussed. We had simultaneously joined the faculty at the University of Virginia in Charlottesville, and we had more or less inherited a leadership role. With enthusiastic support from the then-minimal university administration, and notably from William Duren, then Dean of the Faculty, we established the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy.

The Thomas Jefferson Center for Studies in Political Economy and Social Philosophy [TJC] was to serve first and foremost as a home for a community of scholars who wished to explore the operation of a social order built on individual liberty, and second, “as an educational undertaking in which students will be encouraged to view the organizational problems of society as a fusion of technical and philosophical issues.”

The problem as Buchanan, and the others associated with the TJC, saw it was that the “social science disciplines are rapidly becoming more and more specialized and compartmentalized.” And, as a result, “young scholars, both graduate students and beyond, are encouraged to devote most of their intellectual activity to narrow and limited subject matter and methodological fields. Great emphasis is placed upon the mastery of technical tools. Breadth in scholarship is largely eliminated by this emphasis, and the student remains ignorant of contributions in the related social science disciplines and in social philosophy.”

This would not be a problem if economics was a purely technical discipline akin to mechanical engineering. But it decidedly is not. In fact, intelligence in democratic action relies on tackling the major problems of the social order from a multiplicity of disciplines and differing perspectives. The exclusive focus on technical proficiency comes with a cost. Buchanan asked, “How can our free society expect to survive unless it produces a continuing line of new thinkers who understand, appreciate, and can implement the philosophy of the free society in this rapidly changing world.”

In the October 15, 1958 edition of The University of Virginia Newsletter announcing the founding of the Thomas Jefferson Center, Buchanan stated plainly that the center “strives to carry on the honorable of ‘political economy’—the study of what makes for a ‘good society.'” He also elaborated further what the task of the political economist must be. They must first use the technical tools of economic reasoning to understand and assess how alternative institutional arrangements either hinder or promote productive specialization and peaceful social cooperation. But the political economist cannot be content stopping with that vital exercise. They must “try to bring out into the open the philosophical issues that necessarily underlie all discussions of the appropriate functions of government and all proposed policy measures.”

Joining Buchanan in this research and educational mission were not only Warren Nutter, but also Ronald Coase, Gordon Tullock, and Leland Yeager. These individuals and their graduate students initiated a paradigm shift in economics, law, and political science over the next decades, and in so doing, reinvigorated the discourse in political economy and social philosophy.

Alas, this academic beacon could only shine for so long at the University of Virginia [UVA]. By the late 1960s its founders had scattered far and wide. In the narrative told by members of the Thomas Jefferson Center, this diaspora was the consequence of ideological persecution by members of the faculty outside of economics and their partners in the upper administration. But the research and educational program and its lofty goal of the reclamation of the practice of political economy at its finest hour had already achieved proof of concept. Social philosophy could indeed be practiced from within the disciplinary home of economics, even during the high modern period of scientism. The moral sciences could be envisioned once more as a progressive research program.

As the TJC fell out of favor, an enterprising graduate of UVA and the TJC, Charles Goetz, who had moved to Virginia Polytechnic Institute, saw an opportunity. He understood what was lost by the collapse of the TJC project, and he was able to persuade both Tullock and Buchanan to relocate to VPI, and to create the Center for the Study of Public Choice (CSPC). VPI’s administration sought to establish a world-class economics department, and the opportunity to attract Buchanan and Tullock fit perfectly with that desire. Buchanan would have a considerable role in shaping the curriculum.

In a memo to Dean Mitchell proposing the establishment of the CSPC, Buchanan sought to lay out the basic vision of this paradigm shift in economics and political science. The public choice perspective, Buchanan states, “involves looking at problems with the simple tools of economic theory.”

Why should there be a research and graduate education center devoted to exploring this simple and elementary mode of reasoning through problems in non-market settings? “Because,” Buchanan was quick to add, “the intellectual establishment, which includes almost all of academia, almost all of the media, a great many political leaders, and far too many students, has got away from the simple idea about the political structures that were indeed elementary ideas to our Founding Fathers.”

Similar to the project at the TJC, the proposed CSPC was to focus its analytical attention on the constitutional rules of the social game we are playing. Once again, one cannot pursue the technicalities of public finance without postulating a theory of the state. We cannot, in other words, do economic science without thinking seriously about political philosophy. If we call upon the government to provide goods and services in the public sector as part of our depiction of the ‘good society’, we must examine what public goods are going to be produced, how are those public goods going to be produced and for whom, and in what way will they be financed to ensure both cost effectiveness and justice in the burden to be borne.

In the 1960s, the research and educational program of the TJC was attacked for being ideologically tainted with classical liberalism and modern-day conservativism. In the 1970s, the CSPC would be criticized on methodological grounds for not employing advanced tools in mathematical and quantitative analysis theoretically and empirically. These heated methodological battles resulted in another dissolution of the institutional homeland. In the early 1980s, as the situation became intolerable, Buchanan et al moved to a more hospitable environment, George Mason University (GMU). Like VPI a decade earlier, GMU had just established its Ph.D. program in economics, and thus Buchanan and his colleagues at CSPC would have considerable latitude in shaping the program upon their move from the hills of southern Virginia to the suburbs of Washington, D.C.

Simply put, CSPC closed the doors in Blacksburg and opened new doors in Fairfax, keeping the name and most of the staff. GMU continued to stress public choice as a field of specialization and train students for careers in business, the public sector, or academia. The breadth of economic training was emphasized over technical training for the sake of technical training.

There were two major differences, however, from CSPC in the 1970s, and it made the program at GMU more akin to the original aspiration of the Thomas Jefferson Center. First, CSPC joined a department that already had the Center for the Study of Market Processes—a research and graduate education program greatly influenced by the work of Ludwig von Mises, F. A. Hayek, and Israel Kirzner. Second, Buchanan was deeply immersed in pursuing questions of social philosophy and had ceased teaching his courses in public finance, devoting his teaching and research interests to constitutional political economy and economic and social philosophy.

By 1980, it was crystal clear what the blind spots induced by the Samuelsonian revolution in economics were. The utilitarian, engineering, and elitist presumptions had distorted the discipline beyond recognition to the practitioner of political economy. Buchanan, in his 1964 Southern Economic Association presidential address, had warned about the intellectual dry rot of the allocation as opposed to exchange approach, and the static equilibrium model as opposed to the dynamic process of higgling and bargaining and the emergent properties of the invisible hand. To avoid the pitfalls, the political economists had to acknowledge the subjectivity of value, costs, expectations, and knowledge that is revealed only in the act of choice, and that choice is always within an institutional context that has its own unique reward and penalty structure. Institutions matter.

Buchanan’s research program to move to the constitutional level of analysis was bolstered at GMU by two exogenous shocks to the intellectual universe he occupied. First, in 1986 he was awarded the Nobel Prize in Economic Science. Second, the emerging collapse of communism in East and Central Europe and the fiscal crisis of the social democratic welfare states in Western Europe. Institutional transformations were occurring throughout the globe, and Buchanan was a significant theorist of the institutional infrastructure for a productive and peaceful social order.

As we have seen, Buchanan both at the TJC and at CSPC made reference to the constitutional project of the American Founding. It is important to remember that in Federalist #1, Alexander Hamilton tells his readers that it is up to them to determine whether the constitution of society that they live under will be a function of accident and force, or of reflection and choice. Clearly in the implied social dilemma, intelligence in collective action requires us to choose reflection and choice as our approach to constitutional design. Buchanan agreed with that, and his research program as laid out in The Calculus of Consent, The Limits of Liberty, and The Reason of Rules is the elaboration on this reflection and choice of the rules of the social game under which we live better together.

A genuine institutional economics, then, is about endogenizing the rule formation process and incorporating that into economic analysis. This project had great synergy with the approach of F. A. Hayek, as well as interesting tensions between Hayek’s spontaneous order approach to institutional evolution and Buchanan’s approach to freedom through constitutional construction. But once more, I want to draw your attention to the original depiction of the research and educational mission of the TJC—to use the tools of economic reasoning to explore how alternative institutional configurations impact the ability of individuals to pursue productive specialization and realize peaceful social cooperation through exchange. Moreover, Buchanan’s original program aimed to bring to the forefront the philosophical issues associated with government action, the questions of liberty and autonomy, as well as peace and prosperity. We cannot do economics without philosophy, and we cannot do philosophy without economics. The separation of these disciplines in the 20th century came with a significant cost intellectually and practically, and little benefit outside the arena of academic gamesmanship. We cannot afford this.

If at UVA, the TJC ran into trouble after a decade due to ideological opposition outside of economics, and the CSPC ran into opposition from within economics due to methodological considerations after roughly a decade, at GMU the combination of CSPC and CSMP (now Mercatus) has maintained a sustained effort in research and training in political economy and social philosophy for over 40 years. All the twists and turns, triumphs and tragedies that have followed over the past 60+ years have made possible the survival of a cadre of moral philosophers in the age of scientism and created the space for a progressive research program in a genuine institutional economics which adds in the continuing practice of the grand tradition of political economy. May it long continue.

*Peter J. Boettke is University Professor of Economics & Philosophy, George Mason University, Fairfax, VA 22030.

For more articles by Peter J. Boettke, see the Archive.