James Buchanan, 1919-2013

Economics has lost one of its greats. James Buchanan has passed away at age 93. Born on a Tennessee farm in 1919, he continued working as a farmhand to put himself through college, milking cows twice a day. From there he went on to a long and varied career, culminating in his being awarded the 1986 economics Nobel.

He won that Nobel for his role in developing public choice theory. After the Prize Committee made its announcement, a flock of economically innocent reporters asked him to explain what the heck that was. They were astonished at his simple answer: it is applying the economic way of thinking to politics. It is treating politicians the same as everyone else — self-interested, responsive to incentives, a bit vain, eager to please and be pleased — flesh and blood human beings, basically. The reporters scoffed; why, that’s nothing more than common sense!

Maybe so, he replied. But most economists don’t actually think that way.

It says a lot about the state of the discipline that Buchanan distinguished himself by simply having common sense. Economics since Paul Samuelson has been plagued by physics envy, and Buchanan stuck out like a sore thumb for being more in the mold of Adam Smith, who was more interested in people than disciplinary prestige. Today’s economists are fixated on being quantitative. They want to be scientists and engineers. Leading journals simply will not publish articles that don’t contain regression analyses or at least some sophisticated mathematics. It’s not scientific otherwise.

Buchanan’s most famous book, The Calculus of Consent, has plenty of equations and geometric analysis; he spoke his discipline’s language. But the book wasn’t about appearing scientific. It was about how people behave in the real world. Buchanan rejected the perfect competition model, which sacrifices a great deal of realism to achieve its mathematical elegance. Instead, Buchanan simply applied the economic way of thinking as consistently as possible.

Buchanan also didn’t want to be a savior of humanity, unlike the Galbraiths and Krugmans of the world. “Economics is the art of putting parameters on our utopias,” he said. He was more humble than that. He wanted to be a student of humanity. And he was a good one.

The whole reason Buchanan was wary of over-mathematicization in economics is that the human condition is messy. The clean, elegant models his colleagues were constructing didn’t much resemble real people. And that is a problem; economics is about people. At its core, it is a social science. It is about how people exchange with each other, and the different ways people find to get along (or not) with each other.

Economics is also a way of thinking. What made Buchanan stick out was his dogged consistency in thinking like an economist. That’s what led him to public choice in the first place. Most economists, seeing a market failure, automatically recommend political solutions. Buchanan, knowing that political institutions are subject to all the same foibles as market institutions, was wary of such easy fixes. Buchanan, with typical pith, argued instead for looking at “politics without romance.” The real world is often too complicated for intellectuals’ grand plans to work.

That remarkable consistency led Buchanan to make a lot of contributions besides public choice. Much of Buchanan’s early work had to do with deficit spending. He was against it, which was as unusual in the 1950s as it is today. Even so, his books Democracy in Deficit [PDF] and Public Principles of Public Debt remain influential in today’s spending debate .

He also changed the shape of the ongoing Pigou-Coase debate by inventing the concept of club goods. A club good lies somewhere between a public good and a private good. An apple is a private good because if you eat it, I can’t. It’s gone. National defense is a public good because it is both non-rival – your enjoyment of it doesn’t diminish mine – and non-excludable. The military defends everyone, not just some.

But that dichotomy leaves out a whole host of goods that have some characteristics of both – cinemas, public pools, and cable television come to mind. If one person is in a pool and another person gets in, there’s still plenty of room for both. Their fun is non-rivalrous. But as more and more people get in, all of people’s fun becomes more and more rivalrous, with diminishing returns. The solution to this problem is to set up a club – charge members a fee to join, and build a fence to exclude non-members. Buchanan’s club goods concept has implications not just for pools and theaters, but for communications networks, utilities, and anything that may be subject to a natural monopoly.

Perhaps my favorite bit of Buchananite wisdom is his dichotomy between pre-constitutional analysis and post-constitutional analysis. People respond to incentives, remember. And the rules of the game are what shape those incentives. If you want different results, often you need different rules. A constitution, at heart, is what sets up those rules. What the different branches of government are, what their powers are, how they are elected or appointed, and so on.

Pre-constitutional analysis looks at these different rules and what incentives they provide. It’s more theoretical. Post-constitutional analysis is more empirical – now that these rules are actually in place, how are people behaving? As someone interested in institution-level reform, this way of thinking is invaluable in my own work.

But enough on his intellectual contributions. James Buchanan was a person, too. I only met Buchanan once, and very briefly at that. But even in that brief interaction his kindly Southern genteel manner that charmed friend and foe alike was apparent. He may have been in his 80s at the time, but his eyes and his mind were still sharp, and he was anything but cranky. He worked into his 90s, and age never dulled him. But time wins all battles, and now one of the world’s purest economists is gone. He will be missed.