James M. Buchanan was an economist known for his affiliation with the “Virginia School of Political Economy,” otherwise known as Public Choice theory. Trained at the University of Chicago, his academic journey led him to teach at the University of Virginia, Virginia Tech, and George Mason University. Buchanan’s contributions to public choice theory, which extends economic analysis to political domains, earned him the Nobel Prize in economics in 1986.
Although Public Choice theory maintains a somewhat subdued presence in mainstream economics, Buchanan’s theories are held in disproportionately high regard within libertarian circles. This can be attributed to the fact that public choice theory takes a more realistic view of government benevolence than does mainstream economics. Just as important, however, Buchanan was one of the last libertarians to receive the highest honor in the field of economics, propelling him to a place of elevated status.
Despite Buchanan being a prolific writer and a meticulous scholar, his ideas are leading libertarians astray in some areas and may help explain the lack of progress in Austrian economics in recent decades. There are at least three aspects of Buchanan’s work that deserve closer scrutiny.
Buchanan’s Perspective on Cost: In the 1960s, Buchanan authored a brief text titled “Cost and Choice: An Inquiry in Economic Theory.” The organization and writing of this work resemble more a set of disordered musings than a structured publication. Nevertheless, the book has been highly influential among libertarians. One could encapsulate its core message in the single phrase: “cost is subjective.” Buchanan at times characterized himself as a “radical subjectivist.” Despite Buchanan’s somewhat nuanced stance in the book, his disciples have often interpreted his writings to mean that costs are a psychological phenomenon and “not measurable in monetary terms.” This leads to the ironic situation whereby libertarians misunderstand the idea of opportunity cost and overlook the substantial opportunity costs that governments inflict daily through their inefficient policies. Costs, by their nature, are objective and quantifiable magnitudes in the real world, even if psychological factors shape the market prices used to measure them.
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