The Past, Present, and Future of Public Choice: Part II

Public choice analysis comes from this very recognition, as does the discussion of endogenous rule formation mentioned in the previous essay. As Buchanan points out in The Demand and Supply of Public Goods, the economist cannot be content with only postulating the institutional environment and examining the activities within that environment. He or she must also use the tools of economic reasoning to derive the institutional environment itself, its evolution, and its functioning. In Buchanan’s work, this effort is captured in his social contractarianism, but in the hands of others such as F. A. Hayek before him, and Elinor Ostrom after him, we can see the use of economic reasoning to explain the formation of the rules of governance from the bottom up. They rely more on evolutionary processes for the selection and persistence of rules over time than on a reflective equilibrium of the constitutional bargain to represent the core theoretical contribution of a genuine institutional economics. If social cooperation under the division of labor is the thing we seek to explain, then the processes by which individuals are cajoled to pursue productive specialization and alerted to mutual gains from exchange must be central to our explanatory task.

Also consider the flip side of Buchanan’s 1949 point about the need for economists to postulate a theory of the state before proceeding. Similarly, political philosophers must provide an account of how the various goods and services they envision the state to be responsible for providing will in fact be produced, who will pay, and to whom they will be distributed. In short, political theory cannot do without a worked-out theory of public finance and public economics. Once again, the opportunities in PPE literature are endless for scholars in economics and politics to pursue.

But there is in my mind a bigger issue that lies at the intersection of these disciplines which represents great opportunities for intellectual advancement of the research program in public choice. George Akerlof (2020) published a paper in the Journal of Economic Literature on “Sins of Omission and the Practice of Economics” that highlights the errors that result in economic science due to limitations of the methodological straitjacket we economists are all too willing to wear. As the great physicist Richard Feynman liked to stress, scientists should never fear asking questions that cannot be answered, they should only be wary only of those who offer answers that cannot be questioned.2

A better slogan than ‘trust the science’ is ‘trust the process—the process of contestation that constitutes true science. More recently, W. Brian Arthur (2023) has published a very important essay, “On Economics in Nouns and Verbs.”3 Economics in nouns—the standard practice—is about defining states; it is about a description. Maximizing and equilibrium theorizing is notoriously unable to address questions of processes and paths of adjustment within the confines of formal theory. Thinkers using these models as heuristics can tell a plausible story, or provide an appreciative theory, but it is outside the strict confines of the scientifically acceptable presentation of the model. Arthur argues that for economic science to progress, we must reorient ourselves to doing economics with verbs, i.e., activity and processes of adjustment and adaptation. Such a methodological move would open the intellectual space for one of the core principles of public choice analysis—politics as exchange—in a way that would be a much more natural fit than the standard textbook model of equilibrium optimality. As Buchanan stressed in “What Should Economists Do?”, economics is about exchange and the institutions within which exchanges relationships are formed and transactions are conducted. That is an activity. As Ludwig von Mises put it in his treatise Human Action (1949), the market is not a place or a thing, the market is a process.

The point I want to make is simple and straightforward, scholars in public choice should embrace this message because it was their message from the beginning. Again, revisit Buchanan’s “What Should Economists Do?” or read the early work of Vincent Ostrom on polycentric governance and The Intellectual Crisis of American Public Administration. These relatively new developments within PPE and the critical methodological reflections of the state of economics science represent opportunities for new growth, not challenges to economic science. The ironic message that F. A. Hayek conveyed in his Nobel Lecture4 was that in the sciences of human action and society, the methods that appear the most scientific are in fact the least, while the methods that appear least scientific are in fact the most. Deirdre McCloskey has hammered home a similar message in her recent books Beyond Positivism, Behavioralism and Neo-Institutionalism in Economics (2022) and Bettering Humanomics (2022). We should listen to her. We would practice a better economics if we did, and as such was would practice a better economics of politics and political economy if we did.

The opportunities presented by studying institutions, ideas, and their interaction, as well as the development of new fields such as historical political economy, PPE and Humanomics do not appear out of the blue. We should not just be listening, because these represent new and novel ideas that were unheard of by those who gathered at the initial Public Choice Society meeting 60 years ago. They are new to most economists, especially those trained in the 21st century, but they should not be to those of us who have been attracted to the public choice tradition. McCloskey, like Buchanan before her, is recreating the Smithian political economy project for our day informed by the subsequent scientific and practical history of the 20th century. Adam Smith still speaks to us today because his work remains part of our “extended present”, just as Hayek’s work and Buchanan’s work does. These new literatures are recent ventures into this conversation, but the conversation we are joining is centuries old, and it reflects the best the disciplines of economics, political economy and social philosophy have to offer.

The world out our window still throws up serious puzzles and paradoxes for us to revolve using the tools of economic reasoning. The principles of economics, as James Buchanan liked to stress, are able to raise an ordinary individual who has been trained properly in their use to the height of an observational genius, while a genius unaided by the tools of economic reasoning is too often reduced to a gibbering idiot who mistakes noise for sense. In David Levy and Sandra Peart’s brilliant origin story of public choice, Towards an Economics of Natural Equals (2020), they reproduce G. Warren Nutter’s letter to Ronald Coase, attempting to entice Coase to join them at the University of Virginia. Nutter says in that letter that the school had a group of economists who all learned their lessons in economics well at Chicago under Frank Knight. That lesson is the observational power of the principles of economics in the hands of the properly trained economist.

Often forgotten among the students of Frank Knight is the brilliant Kenneth Boulding. Boulding was the 2nd John Bates Clark Medal winner after Paul Samuelson. But even from the beginning of his career, he resisted the Samuelsonian methodological transformation of economics. He had roughly the same misgivings as Buchanan. Boulding would pursue his own path—I was very fortunate to have him as my teacher—but that path has many parallels to public choice. Like all economists he understood the logic of choice within constraints, but he also understood that choice is more open-ended than deterministic, and the constraints are more subject to our choosing than just fixed and given—again, an intellectual move very familiar to anyone who has studied Buchanan carefully.5 Boulding also was worried about different modes of governance and the faces of power relationships in society, and how to understand their operation on the one hand and counteract them on the other. One of his main concerns was how to establish a stable peace. And to achieve that ,he asked us to consider the examination of the various “cultures of peace” that we experience in our daily lives as we resolve conflicts small and large without recourse to violence or the threat of violence.

To conclude, I think this line of research on cultures of peace, which my colleague Chris Coyne (2023) has embarked upon on the heels of developing an extensive research program in defense and peace economics (see Coyne 2007; 2013; Coyne and Hall 2018; 2021), represents a great opportunity to tie up all these areas I have referenced—institutions, ideas, and their interaction; development, historical political economy, and PPE—to address the serious social problems we face today with increased divisions in society, with the resurgence of populism on both left and right, and a general loss of faith in the possibility of progress. In founding the Thomas Jefferson Center, Buchanan argued that economists must learn the technical principles of price theory to be able to assess the impact of alternative institutional arrangements of the ability of individuals in those societies under examination to pursue productive specialization and realize peaceful social cooperation. But he also said that the political economist must also be willing to ask the philosophical questions that such analysis of comparative institutions raise related to liberty, peace, prosperity and “goodness”. These are what the founders of public choice sought to encourage in the dialogue among economists, political scientists, philosophers, and historians at those early meetings. Furthermore, as the arguments developed in the subsequent decades Buchanan repeatedly asked us to think about whether we can avoid falling prey to the Hobbesian jungle—in short can we find freedom in constitutional contract. While deeply sympathetic to that exercise, Vincent Ostrom nevertheless repeatedly asked us to contemplate if we can in fact successfully manage this Faustian bargain we are compelled to make. Remember in the play, Faustus does not repent, though he has several opportunities to do so, and the play ends with Faustus being dragged off to Hell by demons.

Our task today, I would argue, is the same as what Hayek was led to raise after his debate with John Maynard Keynes and the market socialists in the 1930s and 1940s as he turned his attention from technical economics within a given institutional framework of law, politics and society, to his political economy analysis of the institutional framework itself in works such as The Road to Serfdom (1944), The Constitution of Liberty (1960), and Law, Legislation and Liberty (1979) due to the general neglect of the framework in mid-20th century social science. Hayek asked before the founding of public choice whether the liberal principles of justice and the principles of political economy be restated for the current generation in a way that resonates with the best and the brightest, captures their imagination, excites their curiosity, and marshals their compassion in an effective direction so we can have some hope that we can repair a broken world. If we cannot do that, we run the risk of ceasing being theorists of political economy and instead will become historians of decline as the 21st century will repeat the odious social experiments of the 20th century, once more driven by war, depression, ideological delusion, and destruction. It is in our power to resist this trend and to instead practice the grand and honorable tradition of political economy as passed down to us from Smith to John Stuart Mill, from Carl Menger to Hayek, and from Knight to Buchanan.

Footnotes

[1] James M. Buchanan, “The Pure Theory of Government Finance: A Suggested Approach.” Journal of Political Economy. 57(6), 1949.

[2] As a side note, at least in my experience with Buchanan as my teacher, he ended each class with a question for us to ponder over the next week, never a declarative statement for us to accept or reject. And some of these questions were not just difficult to answer, but perhaps unanswerable. When pressed once for clarification, Buchanan responded with a genuine sense of curiosity, ‘if I knew the answer, I would not have asked the question.’

[3] W. Brian Arthur, “Economics in nouns and verbs.” Journal of Economic Behavior and Organization. January, 2023.

[4] F. A. Hayek, “The Pretense of Knowledge.” Available online at https://www.nobelprize.org/prizes/economic-sciences/1974/hayek/lecture/. NobelPrize.org, December 11, 1974.

[5] As an intellectual history project a contrast and comparison of Buchanan and Boulding would be a very fruitful exercise. Boulding’s The Image is every bit as subjectivist in is orientation as Buchanan’s Cost and Choice, and his Three Faces of Power seeks to understand the governing dynamics of different context in the same way Buchanan wrestles with different power balances in The Limits of Liberty. Both heavily influenced by Knight, but also fearless independent thinkers.