Liberty Matters

Peter Boettke’s Comment on Buchanan et al.

James Buchanan considered himself a "philosophical anarchist," and this was so because of his normative affinity with a philosophy of complete autonomy of the individual.  Theoretically, Buchanan believed in the right of secession down to the level of the individual.  But, practically, he demurred, our social existence requires collective action.
Thus Buchanan lumped all anarchist theories, including modern anarchocapitalist theories associated with Murray Rothbard and David Friedman, with other “romantic” political theories.  And, historically contemplated, clearly Buchanan was right in this judgment.  Anarchistic political thought from Godwin to Bakunin was romantic in precisely the sense Buchanan intended -- requiring a perfecting transformation of humanity for the social system to work.
Rothbard was actually more vulnerable to this criticism, basing his political theory on natural rights and pure deduction from the nonaggression axiom.  His is a theory of anarchism without much emphasis on "mechanism" and "institutional design," but one that emphasized the moral “rightness” of a social system so organized.  Rothbard, like Buchanan, is a "philosophical anarchist," but unlike Buchanan he doesn't see the practical limitations, or perhaps more accurately, he makes an argument that even if the practical arguments against it were right, the moral principles far outweigh them.  Liberty damn the consequences.  For Rothbard, however, it was a happy coincidence that, as a matter of logic and fact, a society based on the consistent application of individual rights to private property resulted in the most efficient economic society humanly possible.  But make no mistake, Rothbard’s anarchism is a “moral theory” of anarchism.
Friedman's argument represents a different tradition in libertarian thought.  His is an "economic theory" of anarchism, and one that at least suggests some of the "mechanisms" and "institutional designs" that might be in operation and how they may in fact work in theory.  Nevertheless, Buchanan lumped Friedman and Rothbard together and then lumped them in with the Godwin to Bakunin romantic political theorists.  However attractive such theories are philosophically, they must be rejected due to need for hard analytics to access alternative institutional arrangements in diverse human societies.
Thus Buchanan explored the escape through a constitutional contract from the Hobbesian jungle that practical anarchy would condemn us to.  Once the escape has been achieved, Buchanan's attention turns to how we can avoid the collapse into Leviathan.  Through successful collective action at the constitutional level a state is constituted, but now comes the task of institutional design such that the protective and productive state are operating effectively without unleashing the negative force of the redistributive state.  If the redistributive state evolves unchecked, we devolve into the churning state -- where interest groups are pitted against each other in a war of all against all in zero-sum games.  Buchanan would like to see a world of nonzero-sum games -- only positive-sum games.
I have gone into this background because it is my assessment that Buchanan's normative caricature of anarchism results in a blind spot in Virginia Political Economy.  Since the financial crisis of 2008, Buchanan pinpointed the problem as one of an overly optimistic faith on the part of modern Chicago economist that market behavior can check itself without a proper framework of rules to discipline the behavior of market participants.  There is much to be said for Buchanan's position, and we will provide a much better analysis of the financial crisis if we move the analysis to the level of rules and the institutional framework.  Economic analysis is ultimately about exchange and the institutions within which exchange takes place.  As Buchanan wrote in The Demand and Supply of Public Goods: “Appropriately thorough analysis should include an examination of the institutional structure itself in a predictive explanatory sense.  The economist should not be content with postulating models and then working within such models. His task includes the derivation of the institutional order itself from the set of elementary behavioral hypotheses with which he commences.  In this manner, genuine institutional economics becomes a significant and an important part of fundamental economic theory.”[1]
Thus an appropriately thorough institutional economics would not just stress the necessity of the framework, but explain both the origins of the framework and the mechanisms in operation to sustain the framework.  Here I think the pigeonholing of "anarchism" into the normative camp misses the critical insights that can be learned for our constitutional analysis from the empirical project of the positive political economy of anarchism.  First, we have a wealth of information about the institutional transformations that took place in medieval societies as we moved from personal exchange to impersonal exchange. (see, e.g., the work of Avner Greif [2006])[2] This work -- which explores institutional prerequisites for the birth of modern economic growth -- emphasizes self-enforcement/self-regulation, evolutionary experimentation with a diversity of rules, and some mix between top-down and bottom-up rule design and establishment.  Thestate is no doubt a major player, but the state is not a single unified entity either.  This point actually had a significant intellectual influence on Buchanan's work in public finance, as evidenced not only in his 1949 "A Pure Theory of Government Finance" but in subsequent works that reflect the influence of the Italian public-finance theorists on his work after his Fulbright year (1955-56).  Public economics must proceed, according to Buchanan, without the delusion of state omniscience and benevolence.  “Real rather than idealized politics, with real persons as actors -- these were the building blocks in the Italian constructions, whether those of the cooperative-democratic state or the ruling class-monopoly state.”[3]
A critical point of emphasis in Buchanan's work is that public finance implies a political theory.  Most public economists engage in their work with only an implicit recognition of the underlying political theory.  Buchanan wants his fellow public economists to make that recognition explicit.  His political theory was a version of contractarianism.  The leap out of the Hobbesian jungle was accomplished through a social contract.  In his stylized treatment, Buchanan is forced to turn a blind eye to the myriad ways in which individuals and groups can turn situations of conflict into opportunities for social cooperation.[4]  Instead, he produces a stylized analytical "history" of freedom in constitutional contract and the structural organization of government that in many ways over-theorizes the social contract and under-“historizes” the way in which rules are subjected to trial-and-error as conflict-resolving mechanisms within and between groups.
Buchanan does this for an important reason -- he distinguishes between the games we play within a given set of rules and the choices we make over the rules of the game.  He has a great analytical “faith” that within the appropriate set of rules the order that will emerge within the process of its emergence will in fact be a socially desirable one.  Yes, Virginia, the market process exhibits a strong tendency toward 1) realizing the mutual gains from trade, 2) inducing the innovations that will result in least-cost technologies being utilized in production, and 3) responding to the diverse demands of the most willing consumers by providing them with the goods and services they desire when they desire them.  In short, within the right institutional framework, the economic forces at work tend to continuously agitate action until a point of exchange efficiency, production efficiency, and product-mix efficiency emerge.  To deny this is to deny the fundamental logic of the economic way of thinking.  While not denying this strong tendency, and in fact relying on it, Buchanan has put the emphasis on the activity of the market that brings about that tendency -- the dynamic competition and entrepreneurial adjustments, the learning and adaptation to changing circumstances, the very becoming of the competitive market process.  He focused his attention on the reconciliation process among diverse market participants, the working out of their differences through exchange.  Consider closely the argument Buchanan provides in "What Should Economists Do?" (1964) or much later in "The Market as a Creative Process" (2000 [1991] with Viktor Vanberg).[5]  The market has no grand teleology toward which it is heading, though its participants certainly do. The order of the market is indeed an emergent order.  Yet the market is not chaotic, but possesses the strong tendency toward realizing the gains from trade and innovation, and producing social cooperation under the division of labor.
The fundamental question that must be raised is one of application of the rules-selection process to the choice among frameworks of rules themselves.  I argued that first, Buchanan failed to incorporate the scientific knowledge that we have learned from the historical evolution of rule regimes from medieval times, and the emergence of capitalism.  Of course, for the operation to take place we must recognize that there is some level at which meta-rules are in operation.  For Europe, for example, it has been hypothesized that the lack of a unified empire like the ones in Russia or China resulted in a healthy competition between the decentralized states, enabling the birth of modern capitalism.  Russia and China no doubt had political competition going on, but the meta-rule situation of a unified empire meant that the competition took a different form from the trial-and-error policies of economic freedom.  But Buchanan not only failed to incorporate this historical knowledge into his account, a second potential shortcoming is that he missed the opportunity to apply his insights to the empirical puzzle of failed and weak states, and transitioning economies.  It is precisely situations where the rules of the games are up for grabs that the task of the political economist must include “the derivation of the institutional order itself from the set of elementary behavioral hypotheses.
By divorcing the constitutional project from the empirical puzzle, Buchanan is able to develop a rational-choice model of rule-making with choosers who are devoid of their humanity not through the typical modeling exercise of omniscience, but through an atypical move of depriving actors of concrete incentives through the veil of uncertainty.  What if, instead, we must examine constitution-making in a world of diverse populations (heterogeneous agents), in large-group settings, and perhaps in a situation defined by recent and deep conflicts?  This is the world that political economists have been addressing in the postsocialist context, in the postwar context, in the African, Latin American, and Middle East context.
Conceptually, constitution-making is an exercise of choice over the rules by which we will play the social game.  Theoretically, it makes sense to think of justness as fairness, and thus we strive for rules that permit neither dominion nor discrimination.  Normatively, as Hamilton raised it in Federalist #1, we prefer to have our constitutions to be products of reflection and choice, rather than accident and force.
Anarchy can be read as synonymous with chaos, or absence of law, in which case its operation depends on either the transformation of humanity or the normative embrace of nasty, brutish and short existence.  This is how Buchanan read those who sought to discuss endogenous rule-formation.  But the “economics of anarchy” literature can proceed along a different line than which either Buchanan and Bush took -- or Friedman, or even more recent work by Hirschleifer or Dixit.[6]   Research on the positive political economy of anarchism simply means the theoretical and empirical discussion of the endogenous formation of rules of the game in the absence of monopoly provider of the rules.  To assume that we can have a monopoly provider that has the capacity to exogenously impose rules on the population that reflect the consensus of the governed is as heroic an assumption as any that traditional public-finance theory operates under.
So yes, James Buchanan was not an anarchist and in fact was highly critical of the libertarian anarchist with whom he intellectually engaged.  He extended those criticisms to Hayekian evolutionism in general.  There simply is, in his analysis, no processes of selection over the rules within the evolutionary process that would ensure the choice of good rules and the weeding out of bad ones.  But he never really engaged the strongest arguments against his position in this regard, as he was content to dismiss the moral theory of anarchism as possessing a certain philosophical desirability but practical shortcomings.  However, his own work, e.g., Limits of Liberty (1975), while distancing him from the radical libertarianism of the Rothbard, David Friedman, and even Nozick variety, nevertheless set the analytical groundwork for later work in “analytical anarchism.”  It is this work, which provides the theoretical puzzle for collective action, that forms the basis for the “positive political economy of anarchism” as an empirical project in modern political economy.  But by remaining blind to this literature and the possibilities it has to offer, constitutional political economists are missing out on the greatest set of “natural experiments” of the ideas and concepts they work with.  As we move onward and upward with the Buchanan project, it is my opinion that work on the endogenous formation of the rules of the game among large, diverse, and often divided populations must take center stage.  “Anarchy,” in other words, cannot be dismissed out of hand as a relic of romantic political philosophy, but instead must be embraced as the empirical reality that has formed the basis of some of the most pressing issues in comparative political economy over the past 30 years in non-western societies.
The western democratic states have their own sets of issues that must be confronted head-on by the constitutional political economist as well.  Buchanan’s profound work should guide us in both paths, but he spoke more directly to the questions that confront the western democratic states.  However, Buchananesque work might yield the highest returns when applied to the areas of transitioning, developing, and failed and weak states, where the basic framework of rules of the game are either ill-defined or poorly enforced, and thus are in need of our analytical attention if we are to address the fundamental problems that plague these societies and the efforts to improve their economic and political well-being.
[1] Buchanan 1999[1968], 5, emphasis added). <>.
[2] Avner Greif [2006], Institutions and the Path to the Modern Economy.
[3] Buchanan 1999[1986], 17). In vol. 1 of The Collected Works of James M. Buchanan, pp. 119-32. [Not available online.]
[4] Consider, for example, the important passage in The Calculus of Consent (1999 [1962], 81) where Buchanan and Tullock explicitly state: “Therefore, our analysis of the constitution-making process has little relevance for a society that is characterized by a sharp cleavage of the population into distinguishable social classes or separate racial, religious, or ethnic groupings sufficient to encourage the formation of predictable political coalitions and in which one of these coalitions has a clearly advantageous position at the constitutional stage.”  <>. But as I will argue, it is precisely this sort of environment that is most relevant for modern political economy to grapple with, and not the stylized analytical exercise of producing a constitutional-level agreement from behind a veil of uncertainty -- though I will argue that Buchanan and Tullock are underselling the contribution that they have to offer to the exercise of constitution-making from the bottom up and in a conflict prone world.
[5] Buchanan, "What Should Economists Do?" (1964) and (with Viktor Vanberg) "The Market as a Creative Process" (1991).
[6] Hirshleifer, Jack, The Dark Side of the Force: Economic Foundations of Conflict Theory, (2001) and Dixit, Avinash, Lawlessness and Economics: Alternative Modes of Governance (2004).