Old (Chicago) school,new century: the link between Knight and Simons’ Chicago plan to Buchanan’s constitutional money

James Buchanan had long been a champion of the early Chicago school’s emphasis on the essential role that institutions play in framing the market process. In his post-2009 analysis of the financial crisis, Buchanan echoed his old Chicago mentors like Frank Knight and Henry Simons in arguing that the Great Recession, like all previous financial crises, was primarily a failure of the rules governing our monetary-financial system. This “old Chicago” emphasis on the institutional “rules of the game” formed the basis of his essential post-2009 argument that the financial crisis fundamentally represented not a market failure, per say, but a constitutional failure. In this paper, I connect the dots in Buchanan’s post-2009 analysis of the Great Recession and his reaffirmation of the need for “constitutional money” to his old Chicago mentor’s strikingly similar calls for a radical restructuring of the monetary-financial system in the Chicago Plan of the 1930s. Though Buchanan’s twenty-first century resurrection of these ideas has yet to conjure up the academic support of his predecessors, certain elements of his “old school” monetary-financial reforms have experienced a strong revival since the financial crisis, as has Buchanan’s more general call to “constitutionalize money.”     

Political economy and the science of association: A suggested reconstruction of public choice through the alliance of the Vienna,Virginia, and Bloomington schools of political economy

We argue that in order to answer the challenges that James Buchanan put to contemporary political economists, a reconstruction of public choice theory building on the work of Buchanan, F.A. Hayek and Vincent Ostrom must take place. Absent such a reconstruction, and the significant challenges that Buchanan raised will continue to go unmet.     

Misjudging the character of the welfare state: Hayek,generality, and the knowledge problem

What are the limits of collective action? As James Buchanan famously worried, is it possible to empower the productive state without lapsing into the predatory state? This paper uses insights from F.A. Hayek to address problems of public goods and the role of the state. Hayek convincingly argued that no central planner has sufficient knowledge to run an economy. Yet Hayek also allowed for state provision of some goods beyond the prevention of coercion. The question, then, is whether Hayek’s safeguards offer a satisfactory response to Buchanan’s worry. This paper contends that Hayek violated his own conditions for permissible government activity. Nevertheless, he offers a serious research agenda for limiting state abuses.     

Human agency and convergence: Gaus’s Kantian Parliamentarian

Public reason is justified to the extent that it uses (only) arguments, assumptions, or goals that are allowable as “public” reasons. But this exclusion requires some prior agreement on domains, and a process that disallows new unacceptable reasons by unanimous consent. Surprisingly, this problem of reconciliation is nearly the same, mutatis mutandis, as that faced by micro-economists working on general equilibrium, where a conceit—tâtonnement, directed by an auctioneer—was proposed by Leon Walras. Gaus’s justification of public reason requires the “as if” solution of a Kantian Parliamentarian, who rules on whether a proposal is “in order.” Previous work on public reason, by Rousseau, Kant, and Rawls, have all reduced decision-making and the process of “reasoning” to choice by a unitary actor, thereby begging the questions of disagreement, social choice, and reconciliation. Gaus, to his credit, solves that problem, but at the price of requiring that the process “knows” information that is in fact indiscernible to any of the participants. In fact, given the dispersed and radical situatedness of human aims and information, it is difficult for individuals, much less groups, to determine when norms are publicly justified or not. More work is required to fully take on Hayek’s insight that no person, much less all people, can have sufficient reasons to endorse the relevant norm, rule or law.     

A social morality for mortals: A review essay of <Emphasis Type="Italic">the order of public reason: A theory of freedom and morality in a diverse and bounded world</Emphasis>

This essay praises Gerald Gaus’s The Order of Public Reason as a building block for all normative explorations into the institutional foundations of human sociability. It evaluates the normative implications put forth by Gaus in terms of the Kirzner’s “finder’s keeper’s ethic.” This raises a question about the relationship between the moral order and the political order that underlies market processes. Examining the role of entrepreneurship in the market process in relation to Kirzner’s “finder’s keeper’s principle” suggests a deeper ethical foundation that underpins the institutional conditions of “social morality.”     

James M. Buchanan’s contractarianism and modern liberalism

This paper contrasts Buchanan’s contractarian–constitutional liberalism with Hayek’s evolutionary liberalism and Rothbards free-market liberalism as representative branches of the classical liberal tradition. While Hayek and Rothbard focus on individual liberty as private autonomy, Buchanan posits that individual sovereignty should be recognized as the fundamental normative premise of liberalism. He insists that a consistent application of this premise requires liberals to respect individuals as sovereigns not only in their capacity as private law subjects but also at the constitutional level of choice where, as sovereign citizens, they choose, jointly with their fellow citizens, the rules under which they wish to live. It is argued that by supplementing the notion of individual liberty as private autonomy with the concept of individual sovereignty in constitutional matters Buchanan lays the theoretical foundation for complementing the well-developed liberal theory of the market with a consistent liberal theory of democracy.     

Natura naturans,natura naturata

In this paper, which is concerned with philosophical methodology as it might affect social science and ethics, the endeavor is to explore the depth and implications of Buchanan’s interest in Spinoza. After establishing their connection, the paper explores the parallels between Spinoza’s “dualism” and Buchanan’s own dualism and how that can shed light on Buchanan’s distinction between constitutional and operational modalities. Given their analogous perspectives, the paper then considers the possibility of dimensional shifts in the dualism, such that what was once a constitutional perspective becomes operational and how that ability to shift might affect various research agendas in the social sciences and ethics. Finally, we raise the question of how separate are the two levels and can they be brought together. In a Spinozistic framework, they ultimately would collapse into a monism, but the conclusion here is that for Buchanan there must always be a gap between them. As a result, the effort to resolve the tension between the dimensions may signal future research agendas in ethics and political economy.     

Socialism after Hayek and human sociality

Was Hayek a postmodernist? Pointing to the important role that human sociality plays in Hayek’s work, Ted Burzack’s answer is resounding “yes.”     

A brief note concerning Hayek’s non-standard conception of knowledge

Whatever F.A. Hayek meant by “knowledge” could not have been the justified true belief conception common in the Western intellectual tradition from at least the time of Plato onward. In this brief note, I aim to uncover and succinctly state Hayek’s unique definition of knowledge.     

From Judicial Sovereignty to Collective Democracy: The Development of J.R. Commons’ Perspective on Progressive Institutional Change

Abstract:

This article clarifies the significance of “collective democracy” in the works of John R. Commons by comparing it with “judicial sovereignty” in terms of its contribution to “progress.” We can thus answer two issues that Paul D. Bush does not clearly address: (i) what setup for policy formation contributes to progress and (ii) what is the role of economists within a collective democracy? Based on the comparison, the answer to the first question is collective democracy, and regarding the second question, the roles of economists as both economists and “institutional” economists are extrapolated.     

On the extraordinary scholarly life and times of Gordon Tullock

Gordon Tullock, who passed away at the age of 92 on November 3, 2014, ranks justly near the top of the list of the “founding fathers” of the public choice research program. Most widely known in the academy as coauthor of The Calculus of Consent (Buchanan and Tullock 1962), Professor Tullock was not named, unfairly in our joint opinion, as co-recipient of James Buchanan’s 1986 Nobel Prize in Economic Sciences. A good case nevertheless can be made that Gordon earned Nobel laurels on his own account for groundbreaking contributions to the literatures on, among other topics of scholarly study, rent seeking, autocracy, bureaucracy, war and revolution, law and economics and bio-economics. This essay celebrates Gordon Tullock’s major influences on the field of public choice, including his launching of Public Choice, the journal for which both of us have served as editors, and his impacts on scholars working at the many and obviously fruitful intersections of economics and political science.     

Politics as exchange: the classical liberal economics and politics of James M. Buchanan

James Buchanan advocated the market mechanism for allocating resources because it is based on voluntary exchange. People engage in market transactions only when they believe they benefit from doing so. Buchanan depicted the political process the same way. People engage in collective activities to accomplish together ends that they would be unable to accomplish individually, or through bilateral exchange. Buchanan’s vision of politics as exchange is a normative framework for evaluating the rules within which political activity takes place. Rules that meet the criterion of agreement are desirable constitutional rules, and Buchanan recognized that not all government activity satisfies that criterion. Buchanan is the father of the subdiscipline of constitutional political economy, and his “politics as exchange” approach provides the foundation for much work in that area. Buchanan has created a foundation that is rich in ideas, but leaves behind a number of unanswered questions that point the way toward a further development of the research program in constitutional political economy.     

The emergence of institutions in Hayek’s theory: two views or one?

Hayek opposes the explanation of the emergence of institutions as “spontaneous (unintentional) order”, which he considers correct, against “constructivism” (viewed as erroneous). This dichotomy exhibits some inconsistencies, for, on Hayek’s account, constructivist ideologies seem able both to prevent the evolutionary emergence of norms and to generate institutions coherent with deliberate, intentional, purposes. If this is so, are there then two views on the emergence of institutions in Hayek’s theory? The paper consequently discusses whether constructivism and evolution of norms are two alternative kinds of explanation, and in particular whether the former can be interpreted in evolutionary terms.     

Evolving views on monetary policy in the thought of Hayek,Friedman, and Buchanan

Attempting to find the technically optimal monetary policy is futile if the Federal Reserve’s independence is undermined by political influences. F. A. Hayek, Milton Friedman, and James Buchanan each sought ways to improve the performance of the Federal Reserve. They each ended up rejecting the possibility that technical refinement or minor reforms might be sufficient. After properly accounting for the concerns of robust political economy, each concluded that a fundamental restructuring of our monetary system was necessary. Friedman turned to binding rules, Buchanan to constitutionalism, and Hayek to competing private currencies. We synthesize their contributions to make a case for applying the concepts of robust political economy to the Federal Reserve through the adoption of professional humility, creative thinking, and an emphasis on the politically possible, not the politically acceptable.     

Rights: Why do they matter,and to whom?

Following Sen, social choice theorists often formulate rights in terms of relationships between individuals' preferences and social preferences. An alternative “procedural” formulation treats rights as properties of game forms. This paper reviews the debate between the proponents of these two approaches, focusing in particular on Sen's claim that the procedural approach is inflexible in its refusal to make trade-offs between rights violations. It looks at different answers to the question, “Why do rights matter?” It argues that, if a contractarian answer is given, there are good reasons not to make trade-offs.     

On the Feasibility of a Liberal Welfare State: Agency and Exit Costs in Income Security Clubs

This paper investigates whether individuals might voluntarily join and remain members of a state in which high levels of social insurance are provided. That is to say, are there plausible circumstances in which a social welfare state can be regarded as “liberal” in the sense that it has the universal support of its citizens?As a point of departure, the paper demonstrates that risk-averse individuals in a setting of substantial income or health uncertainty will voluntarily join private income-security clubs. Private income-security clubs, however, cannot be entirely voluntary because they must solve the problem of adverse selection, as with entry or exit fees. The paper demonstrates that individuals may opt for governmental provision of income security services, when there is uncertainty about the quality of private club services, because naturally high exit costs allow national governments to economically address the problem of adverse selection. The analysis also suggests that liberal income security programs may have constitutional or quasi-constitutional status because of the nature of the long-term nature of the insurance contract.     

Why should Austrian economists be pluralists?

Peter Boettke (2007) argues that economists need not act pluralistically in order for pluralism to thrive in the marketplace of economic ideas. From a market process perspective, Boettke sees intellectual diversity and openness as catallactic outputs, not inputs—emergent by-products of academic specialization and trade. To expect individual scholars to behave in a pluralistic manner is unnecessary and “completely inappropriate” since it detracts from their central task: “to commit themselves to an approach and pursue it doggedly, even in the face of great doubt and resistance by one’s peers” (Boettke 2007). This paper proposes a Smithian revision of Boettke’s position. The author argues that scholarly pluralism is best understood as a constitutional rule of academic life—a virtue ethic that promotes learning and intellectual freedom by mitigating tyranny and autarky in the republic of science. Drawing from the writings of Adam Smith, Friedrich Hayek, Deirdre McCloskey, Bruce Caldwell, James Buchanan, Don Lavoie, and Boettke himself, the author argues that scholarly pluralism has been, and continues to be, a necessary condition for the flourishing of Austrian economists as free, responsible, efficacious thinkers.     

On choosing which game to play when ignorant of the rules

This paper suggests a theory of choice among strategic situations when the rules of play are not properly specified. We take the view that a “strategic situation” is adequately described by a TU game since it specifies what is feasible for each coalition but is silent on the procedures that are used to allocate the surplus. We model the choice problem facing a decision maker (DM) as having to choose from finitely many “actions”. The known “consequence” of the ith action is a coalition from game f _i over a fixed set of players \(N_i\cup\{d\}\) (where d stands for the DM). Axioms are imposed on her choice as the list of consequences (f ₁,..., f _m ) from the m actions varies. We characterize choice rules that are based on marginal contributions of the DM in general and on the Shapley Value in particular.     

New constitutional “debt brakes” for Euroland? A question of institutional complementarity

Despite the EU Stability & Growth Pact and existing constitutional limits on public deficit/debt at the (sub)national level in many EU member countries, in the wake of the 2010 Greek bailout, many politicians and policy advisors have proposed new constitutional “debt brakes” to prevent future fiscal crises and bailouts. This paper puts a question mark behind this popular policy recommendation. Public choice scholars and other critical observers have repeatedly emphasised that constitutional deficit/debt limits are not per se credible commitments to run a sound fiscal policy in the future. To demonstrate this, design defects of such fiscal constraints are usually pointed out (no politically independent control, no sanctions, etc.). Going beyond this standard approach of credibility assessment, this paper argues for taking the issue of institutional complementarity seriously. To assess its credibility, one has to not only examine the design of a deficit/debt limit but also the institutional environment (tax/expenditure policy, capital market, etc.) in which such a constitutional commitment is embedded.