James Buchanan

Quotes From

Public Principles of Public Debt: A Defense and Restatement (1958)

• Instead of serving as a substitute for money creation, debt issue should, fundamentally, be viewed as its opposite. The sale of government securities bearing positive interest returns is necessary only if some reduction in the purchasing power of private individuals and institutions is needed and if the process of sale accomplishes this reduction.#

The Calculus of Consent (1962)

• In an opportunity cost sense, the failure to take cooperative action when such is actually more “efficient” is precisely equivalent to the taking of positive private action that is detrimental to overall “efficiency”.#
• The only purpose of science is its ultimate assistance in the development of normative propositions. We seek to learn how the world works in order to make it work “better”, to “improve” things: this is as true for physical science as it is for social science.#
• Christian idealism, to be effective in leading to a more harmonious social order, must be tempered by an acceptance of the moral imperative of individualism, the rule of equal freedom. . . . “Love the neighbor, but also let him alone when he desires to be let alone” may, in one sense, be said to be the overriding ethical principle for Western liberal society.#
• A widespread adoption of Judeo-Christian morality may be a necessary condition to the operation of any genuinely free society of individuals.#
• If the terms of trade are set independent of the individual participant’s own behavior, no ethical question can arise concerning his “fairness” in dealing with other parties to exchange, ruling out fraudulent behavior. Thus we find that ethical issues about market behavior present themselves only when individuals or groups are in noncompetitive positions, when they possess some power to influence the terms of trade in their favor.#
• There is nothing in the operation of majority rule to insure that public investment is more “productive” than alternative employments of resources, that is, nothing insures that the games be positive-sum.#

The Demand and Supply of Public Goods (1968)

• [A] multiplicity of optima is a characteristic of all interaction processes where gains-from-trade are possible [i.e. sharing of the inframarginal gains]. The apparent uniqueness present under perfectly competitive conditions in the private-goods market should be treated as a bizarre exception, not as a characteristic to be mirrored in other settings.#
• With production externalities there is a particular efficiency reason for considering publicly managed or controlled supply of service facilities. With consumption externalities, the type of organization should be determined strictly by more orthodox efficiency criteria. The argument for “public schools” (as opposed to “public financing of education”) must rest on a different footing from the argument for “public police protection”.#

Cost and Choice (1969)

• In the externality relationship, by definition, trade does not take place. It seems reasonable to think that it is precisely in this kind of relationship that genuinely benevolent behavior patterns might be witnessed. Indeed, it might plausibly be argued that in almost all of our nonmarket behavior, there is potential externality and that the ordinary functioning of civil society depends critically on a certain mutuality of respect. #
• The individual whose payoff structure is only some proportionate share of that which he might confront under full ownership will tend to take more risks. The reason is obvious. Since the nonpecuniary differential arises only because of the declining marginal utility of income, the fact that the outcome range is lower under proportionate share payoffs than under full responsibility and ownership ensures some lessening of this differential.#
• To locate the genuine cost of public goods, a cost which influences fiscal choice, we must look at the fiscal alternatives. What is avoided if debt is not issued and the public goods not provided? If public debt is not created, if bonds are not marketed, the decision- maker, along with others in the collectivity, avoids the necessity of servicing and amortizing the debt in future periods.#
• The familiar statement, ‘‘The post offices built during the 1930’s cost very little in terms of sacrificed alternatives’’ tends to be misleading. These projects did involve genuine opportunity costs to the decision-makers, and these were represented as the prospective values of other public and private projects that were never undertaken. The issue of currency, to the extent that this was carried out in the conditions of the 1930’s, was the choice that should have cost very little in terms of sacrificed alternatives.#
• The cost-benefit expert cannot have it both ways. He cannot claim ‘‘scientific’’ precision for his estimates unless he restricts himself rigidly to objectively observable magnitudes. But if he does this, he cannot claim that his estimates reflect reasonable norms upon which ‘‘social’’ choices should be based.#
• If idealized market interaction process—pure or perfect competition—is used as the standard for deriving conditions which are then to be employed as norms for interference with actual market process, the question of objective measurement must be squarely faced. If prices ‘‘should’’ be brought into equality with costs of production, as a policy norm, costs must be presumed objective, in the sense that they can be measured by others than the direct decision-maker.#
• Cost is relevant to decision, and it must reflect the value of foregone alternatives. A budget, however, reflects the prospective or anticipated revenue and outlay sides of a decision that has been made. It is erroneous to consider such prospective outlays as appear in a budget as costs. The budget must, however, also be distinguished from the account, which measures realized revenues and outlays that result from a particular course of action.#
• There is necessarily a close correlation between the relevance of objectively measured costs for a theory of choice in either long-term or short-term equilibrium and the presence or absence of uncertainty. In the face of uncertainty, the evaluation of alternatives by the actual decision-taker may differ from the evaluations of any external observer, even if the qualifying conditions are met. The inherent subjectivity of cost in any theory of choice reasserts itself here.#
• So long as individuals on either side of the market are allowed to express their preferences by continuous adjustments in behavior, nonpecuniary elements will be fully embodied in the solution that emerges. Prices will tend to equal marginal opportunity costs. What is destroyed by the presence of nonpecuniary elements in choice is the spurious objectivity of costs, as measured by prices of resource services.#
• To the extent that the consideration of prospective harm to others, or, in fact, any moral restraint upon the decision, varies with the location and incidence of the offense contemplated, the opportunity cost of the offense varies. Hence, we should expect that crimes committed within the local community of the perpetrator against persons with whom he has close contacts would normally involve a higher cost barrier due to the moral restraint upon the actor in such a situation. From this it follows that fines or penalties required to achieve any given level of deterrence can be somewhat lower for these cases than for others. That is, crimes committed locally should bear lower fines than those imposed for identical crimes committed outside the community and on ‘‘foreigners.’’#
• If the ‘‘true costs’’ of employing resources could be measured (let us say by an omniscient observer who can read all preference functions) along with the ‘‘true benefits,’’ allocative efficiency in nonmarket resource usage could be ensured only if the effective decision-maker acted in accordance with artificial criteria for choice. That is to say, allocative efficiency will emerge only if the effective choice-maker acts, not as a behaving person, but as a rule-following automaton.#
• Only if costs can be objectified can they be divorced from choice, and only if they are divorced from choice can the institutional-organizational setting that the chooser inhabits have no influence on costs.#
• Nonmarket choice cannot, by its very nature, be made to duplicate market choice until and unless the ownership-responsibility pattern in the former fully matches that in the latter, an achievement that would, of course, eliminate all institutional differences between the two.#

The Reason of Rules (1985)

• The commonality of [a] norm, at least over a large number of persons, is a necessary feature of any operationally useful theory of choice or action that moves beyond the strict individualistic models#
• In the absence of effective enforcement procedures, adherence to rules rather than departure from them requires that individuals forswear expected utility maximization.#
• Considerations of justice argue not so much for a wholesale reconstruction and reformation of rules as for a proper understanding of which rules actually prevail and for a reconciliation of conflicts, inconsistencies, and ambiguities among those prevailing rules. Justice is seen to demand a harmonization of the rules and possibly an extension of the domain of rule-governed behavior. Justice is not, however, seen to provide an independent norm on the basis of which ab initio design of ideal rules might be structured.#

“Order Defined in the Process of Its Emergence” (1985)

• Individuals do not act so as to maximize utilities described in independently-existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post, in terms of ‘as if’ functions that are maximized. But these ‘as if’ functions are themselves generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange.#Quoted in Tom Palmer, “The Hermeneutical View of Freedom” (1990)

Economics: Between Predictive Science and Moral Philosophy (1987)

• If there is, in fact, no relationship between income and wealth levels and the evaluations that individuals place on public goods, almost all of the institutions on general taxation must produce serious distortion in the allocation of economic resources.#
• Ultimately, of course, discussion must reduce to values, but when it does so it is done. If the indolent scholar relies on an appeal to values at the outset, his role in genuine discussion is, almost by definition, eliminated.#
• In a real sense, Western societies have attained universal suffrage only after popular democracy has disappeared. The electorate, the ultimate sovereign, must, to an extent not dreamed of by democracy’s philosophers, be content to choose its leaders.#
• As people get richer, they need to rely less and less on their neighbors to cooperate in securing the indivisible benefits of possible joint activities, but they may need to rely more and more on some collective mechanism to prevent themselves, and their neighbors, from imposing mutually undesirable costs on each other. In its broadest sense, “congestion” replaces “cooperation” as the underlying motive force behind collective action.#
• So long as the process of economic growth and development serves to increase the opportunity costs arising from failure of individuals to act privately more than it serves to increase the private cost of the activity itself, there will surely be some tendency for the independent or private adjustment equilibrium to shift toward the social optimum in the process, “optimum” being defined by the standard Paretian criteria. The external economies become less relevant as the society becomes more affluent. At some point in the process of development, these may become irrelevant, and, if they do, the activity should be returned to private organization providing it has been previously collectivized.#
• An externality is defined to be Pareto-relevant when the extension of [another party’s] activity may be modified in such a way that the externally affected party, A, can be made better off without the acting party, B, bring made worse off. That is to say, “gains from trade” characterize the Pareto-relevant externality, trade that takes the form of some change in the activity of B as his part of the bargain.#
• The scope for “free-riding” in human interaction is so ubiquitous that if men genuinely were as economic theory depicts them, no sort of ordered society, whether market-dominated or not, would be possible. In this basic sense, the very existence of an ordered society casts doubt on the homo economicus model of behavior, if used as some all-inclusive explanatory hypothesis.#
• The purpose for which homo economicus was used in classical political economy was largely that of comparing the properties of alternative socioeconomic arrangements (constitutions) and not that of explaining “scientifically” (making predictions about) the behavior of economizing actors.#

The Logical Foundations of Constitutional Liberty (1998)

• The equity norm for the distribution of tax burdens can be viewed as a constitutional standard designed to prevent the exploitation of minorities through the fiscal process.#
• The distinction to be drawn between economics and politics, as disciplines, lies in the nature of the social relationships among individuals that is examined in each. In so far as individuals exchange, trade, as freely contracting units, the predominant characteristic of their behavior is “economic.” And this, of course, extends our range far beyond the ordinary price-money nexus. In so far as individuals meet one another in a relationship of superior-inferior, leader to follower, principal to agent, the predominant characteristic in their behavior is “political.” . . . Economics is the study of the whole system of exchange relationships. Politics is the study of the whole system of coercive or potentially coercive relationships.#
• It is clearly wasteful to devote intellectual resources in proffering advice to a nonexistent decision-maker.#
• Rent-seeking activity is directly related to the scope and range of governmental activity in the economy, to the relative size of the public sector.#
• A necessary condition for deriving a social welfare function is that all possible social states be ordered outside or external to the decision-making process itself.#
• The definition of democracy as “government by discussion” implies that individual values can and do change in the process of decision-making. . . . If individual values in the Arrow sense of orderings of all social alternatives are unchanging, discussion becomes meaningless.#
• The reason that majority rule proves tolerably acceptable and individual authoritarian dictatorship does not lies not in the many versus the one. It is because ordinary majority decision is subject to reversal and change, while individual decision cannot readily be made so. With identical majority orderings, the majority would, of course, always choose the same leaders, and this advantage of majority rule would be lost.#
• One of the most important limitations placed upon the exercise of majority rule lies in the temporary or accidental nature of the majorities. . . . Majority rule is acceptable in a free society precisely because it allows a sort of jockeying back and forth among alternatives, upon none of which relative unanimity can be obtained. . . . In this way, majority decision-making itself becomes a means through which the whole group ultimately attains consensus. that is, makes a genuine social choice. It serves to insure that competing alternatives may be experimentally and provisionally adopted, tested, and replaced by new compromise alternatives approved by a majority group of ever-changing composition.#
• Majority decision must be viewed primarily as a device for breaking a stalemate and for allowing some collective action to be taken.#
• A felicific calculus becomes absurd in this setting [where man can choose what pleases him], as does all talk of such things as “national goals;’ “national priorities;’ or even such familiar things as “university objectives.” Traditionally, many of us who have been critical of such talk remark that “only individuals can have goals.” But I am here advancing the more radical notion that not even individuals have well-defined and well-articulated objectives that exist independently of choices themselves.#
• The optimality or efficiency of any file prohibiting voluntary agreements can only be demonstrated in those cases where some external effects are present and where there is done asymmetry in the costs of organizing different voluntary agreements.#
• For the increase in the extent of the market, for all tradeable goods, to generate increases in economic value, properly measured, returns must be increasing (costs must decrease) somewhere in the economy, but the identification of the location of this source of gain may not be possible until after the expansion of demand that calls additional production (in such an industry and elsewhere) into being.#
• If the extent of the market limits the potential for deriving the advantages of specialization, at least one industry in the totality that describes the production-exchange nexus must exhibit increasing returns of the sort indicated.#
• Perhaps the single most familiar statement in The Wealth of Nations is that which tells us that “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest” (I, ii, 2). We understand Adam Smith’s argument here, but if we take the conventional theory of distribution in the competitive economy seriously we immediately sense an apparent contradiction. If the butcher, and everyone else, takes from the economy precisely the equivalent of the value added to the economy by their efforts, how do we benefit from individuals’ self-interested behaviour?#
• As it operates and as we observe it to operate, ordinary politics may remain conflictual . . . while participation in the inclusive political game that defines the rules for ordinary politics may embody positively valued prospects for all members of the polity. In other words, constitutional politics does lend itself to examination in a cooperative analytical framework, while ordinary politics continues to lend itself to analysis that employs conflict models of interaction.#
• The categorical distinction between choices among rules and choices within rules all but disappears in the utilitarian configuration.#
• The communitarian challenge to methodological individualism must go beyond the claim that individuals influence one another reciprocally through presence in communities. The challenge must make the stronger claim that individuation, the separation of the individual from community, is not conceptually possible, that it becomes meaningless to think of potential divergence between and among individual interests in a community.#
• In the absence of self-imposed constraints, we are simple human animals. And a measure of our advance from this animal state is provided by the distance that separates us from the internally anarchistic psychological benchmark defined by the total absence of self-imposed rules.#
• [In the prisoners’ dilemma,] the outcome predicted, and possibly observed, to emerge may be classified as “presumably inefficient” for the set of prisoners considered as a group because they are not allowed to make explicit exchanges. . . . [It] may, however, be an efficient institution for forcing prisoners to confess. That is to say, the subset of the population made up of prisoners only may not be the set relevant for a political-collective evaluation of the institution. In the more inclusive community, the test for whether or not that institution which removes the option of binding contracts among prisoners is efficient would depend on the attainment or nonattainment of community-wide consensus on change to some alternative institution.#
• Progressive taxation has been justified because it leads to a more equal distribution of income among individuals. Standing alone, the statement that progressive taxation does redistribute real income is not true. It can be true only on the basis of certain assumptions about the other half of the fiscal system [i.e. expenditures]. . . . The statement that progressive taxation will redistribute incomes but that proportional taxation will not implies that benefits are returned to individuals in proportion to incomes and wealth.#
• For the best part of three decades, economists tried to use a perception designed to isolate features of a macroeconomy in deflationary expectational chaos to look at a macroeconomy in postwar boom. The supreme folly of the Keynesians was perhaps the genuinely held but arrogant opinion to the effect that the surge in unemployment and output was itself a consequence of the application of the Keynesian policy tools.#

Economic Inquiry and its Logic (2000)

• If the extent of the market limits the potential for deriving the advantages of specialization, at least one industry in the totality that describes the production-exchange nexus must exhibit increasing returns.#
• The paucity of billboards in the Moscow of 1990 was not primarily attributable to regulatory prohibition. This result emerged directly from the fact that no seller-supplier of any good or service felt any economic pressure to respond to customer interests or to expand the demands for products.#
• The statement that individual utilities or productivities are interdependent is equivalent to saying that some resource which is commonly used is not centrally owned. But from this it does not follow that a change in ownership alone is always sufficient to produce the necessary conditions for attaining a Paretian utility frontier. . . . In many cases it is impossible to secure the centralization of ownership required to make the external diseconomies of usage internal to a single owner without at the same time providing the single owner with a degree of monopoly control over the total supply of resource services.#
• Many, indeed the overwhelming majority, of the technologically feasible positions cannot be behaviourally realized, under any regime.#
• Statistical inquiry may reveal the existence of parallel increases in minimum wages and in employment. But to rely on such empiricism to invalidate the economists’ scientific enterprise is equivalent to making the observation that Peter Pan really does fly because one’s vision does not disclose the existence of the supporting wires from the rafters.#