In James M. Buchanan and Liberal Political Economy, Richard Wagner contends that James Buchanan’s academic contributions aimed to rejuvenate the classical political economy espoused by Adam Smith and John Stuart Mill, employing the analytical tools of modern neoclassical economics. Wagner (2017, 58) observes that Buchanan was fundamentally a democrat, embracing the ideals of self-governance. He acknowledged that while democracy is inherently valuable, it is also vulnerable to degradation, necessitating vigilant efforts to uphold its integrity.
Buchanan’s constitutional endeavor was twofold: it sought to uncover the governing dynamics of different institutional frameworks while also preparing future scholars with the intellectual rigor necessary for ongoing discourse. He identified a troubling trend in post-World War II economics, where public finance and economics leaned towards a utilitarian and elitist worldview. This perspective comfortably sanctioned the idea that governing elites could act in the public interest, viewing government primarily as a corrective mechanism and policy as a means to achieve ideal societal outcomes. Buchanan, however, found this unsettling. He emphasized the crucial need to examine the institutional context in which policy decisions are made and executed.
In his inaugural major publication, Buchanan insisted that economics must be intertwined with political philosophy. Before addressing how to fund government activities, one must clarify which activities fall under the state’s purview. He diverged from classical economists like Jean-Baptiste Say, who argued that state involvement is invariably unproductive. While Buchanan recognized the potential benefits of state collective action, he remained acutely aware of the risks it posed. Throughout his career, he grappled with the challenge of empowering the protective and productive state while preventing the emergence of a predatory state that could erode democracy.
From Dream to Reality
In the late 1950s, Buchanan seized the chance to realize his academic aspirations and mentor the next generation of scholars in this pursuit. Recalling the events of early 1957, Buchanan (1987) noted:
- … in early 1957, Warren Nutter and I found ourselves in a position to actuate the idea we had discussed. We had simultaneously joined the faculty at the University of Virginia in Charlottesville, and we had more or less inherited a leadership role. With enthusiastic support from the then-minimal university administration, and notably from William Duren, then Dean of the Faculty, we established the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy.
The Thomas Jefferson Center for Studies in Political Economy and Social Philosophy (TJC) was envisioned primarily as a haven for scholars interested in exploring a social order founded on individual liberty. Additionally, it aimed to educate students in viewing societal organizational challenges as a blend of technical and philosophical issues.
Buchanan and his colleagues perceived a significant problem: social science disciplines were becoming increasingly specialized and compartmentalized. This trend encouraged young scholars—graduate students and beyond—to narrow their focus to limited subject matters and methodologies, often at the expense of broader scholarly engagement. The emphasis on technical mastery risked leaving students ignorant of valuable contributions from other social science fields and social philosophy.
Had economics been a merely technical discipline akin to mechanical engineering, this wouldn’t have posed a problem. However, economics profoundly influences democratic action, necessitating the examination of societal issues from various disciplines and perspectives. Buchanan raised a critical question: “How can our free society expect to survive unless it produces a continuous line of new thinkers who understand, appreciate, and can implement the philosophy of the free society in this rapidly changing world?”
In the October 15, 1958 edition of The University of Virginia Newsletter, announcing the founding of the Thomas Jefferson Center, Buchanan succinctly stated that the center was committed to carrying on the noble tradition of ‘political economy’—the inquiry into what constitutes a ‘good society.’ He elaborated on the political economist’s role, emphasizing that they must first employ economic reasoning to evaluate how various institutional arrangements either promote or obstruct productive specialization and peaceful cooperation. However, this exercise must not end there; they must also expose the philosophical issues underlying discussions on government functions and proposed policies.
Alongside Buchanan in this academic mission were notable figures such as Warren Nutter, Ronald Coase, Gordon Tullock, and Leland Yeager. Together with their graduate students, they instigated a paradigm shift across economics, law, and political science, reinvigorating the discourse surrounding political economy and social philosophy.
Regrettably, this academic beacon at the University of Virginia was not destined to shine forever. By the late 1960s, its founders had dispersed. According to narratives from TJC members, this fragmentation stemmed from ideological persecution by faculty outside of economics and their allies in upper administration. Nevertheless, the research and educational initiatives had already demonstrated the viability of practicing social philosophy within the discipline of economics, even during a period dominated by scientism. The moral sciences could once again be envisioned as a progressive research program.
Buchanan in Blacksburg
As the TJC began to fade, an enterprising alumnus, Charles Goetz, who had graduated from UVA and TJC, recognized the opportunity to fill the void left by the TJC’s collapse. He successfully persuaded Tullock and Buchanan to relocate to Virginia Polytechnic Institute (VPI) and establish the Center for the Study of Public Choice (CSPC). VPI’s administration aimed to build a world-class economics department, and the prospect of attracting Buchanan and Tullock aligned perfectly with that objective. Buchanan played a pivotal role in shaping the curriculum.
In a memo to Dean Mitchell proposing the establishment of the CSPC, Buchanan outlined his vision for this paradigm shift in economics and political science. The public choice perspective, he argued, “involves examining problems with the straightforward tools of economic theory.”
Why establish a center dedicated to exploring this elementary approach to reasoning in non-market contexts? Buchanan quickly responded, “Because the intellectual establishment—encompassing nearly all of academia, much of the media, a plethora of political leaders, and far too many students—has strayed from the fundamental ideas about the political structures that were, indeed, elementary concepts for our Founding Fathers.”
“If we call upon the government to provide goods and services in the public sector as part of our depiction of the ‘good society’, we must examine what public goods are going to be produced, how are those public goods going to be produced and for whom, and in what way will they be financed to ensure both cost effectiveness and justice in the burden to be borne.”
Similar to the TJC initiative, the proposed CSPC aimed to focus analytical attention on the constitutional rules governing the social game we play. Once again, one cannot delve into the intricacies of public finance without establishing a theoretical framework for the state. In essence, one cannot engage in economic science without serious contemplation of political philosophy. If we expect the government to provide public sector goods and services as part of our vision of a ‘good society’, we must critically evaluate what public goods will be produced, their production methods, the intended beneficiaries, and the financing methods to ensure both efficiency and equity in cost distribution.
In the 1960s, TJC’s research and educational agenda faced criticism for being ideologically biased towards classical liberalism and contemporary conservatism. In the 1970s, the CSPC encountered methodological critiques for its failure to employ advanced mathematical and quantitative analytical tools. These contentious methodological disputes ultimately contributed to another dissolution of the institutional framework. By the early 1980s, as tensions reached a breaking point, Buchanan and his colleagues relocated to a more accommodating environment at George Mason University (GMU). Like VPI a decade earlier, GMU had recently established its Ph.D. program in economics, granting Buchanan and his CSPC colleagues substantial latitude in shaping the program upon their transition from the scenic hills of southern Virginia to the bustling suburbs of Washington, D.C.
In essence, CSPC closed its doors in Blacksburg only to reopen them in Fairfax, retaining its name and most of its personnel. GMU continued to emphasize public choice as a field of specialization, preparing students for careers in business, public service, or academia. Importantly, the emphasis shifted towards a broader economic education rather than a narrow focus on technical training for its own sake.
However, two significant differences distinguished the CSPC at GMU from its predecessor in the 1970s, aligning it more closely with the original aspirations of the Thomas Jefferson Center. First, CSPC joined a department that already housed the Center for the Study of Market Processes—a research and graduate education initiative heavily influenced by the contributions of Ludwig von Mises, F. A. Hayek, and Israel Kirzner. Second, Buchanan became deeply engaged in social philosophy, shifting his teaching and research interests towards constitutional political economy and the philosophical dimensions of economics, leaving behind his previous focus on public finance.
By 1980, it became increasingly evident what the blind spots created by the Samuelsonian revolution in economics were. The utilitarian, engineering-based, and elitist assumptions had distorted the discipline beyond recognition for political economy practitioners. In his 1964 Southern Economic Association presidential address, Buchanan warned against the intellectual decay stemming from an allocation-focused approach, as opposed to one rooted in exchange. He critiqued the static equilibrium model in favor of a dynamic understanding of bargaining and the emergent properties of the invisible hand. To navigate these pitfalls, political economists had to acknowledge the subjectivity of value, costs, expectations, and knowledge—insights revealed only through the act of choice, which always occurs within a unique institutional context characterized by its own reward and penalty structures. Institutions, it turns out, matter.
Buchanan’s research program, which shifted towards a constitutional analysis framework, gained momentum at GMU due to two external shocks impacting the intellectual landscape he inhabited. First, he received the Nobel Prize in Economic Science in 1986. Second, the impending collapse of communism in Eastern and Central Europe and the fiscal crises facing social democratic welfare states in Western Europe were unfolding. Institutional transformations were happening globally, and Buchanan emerged as a significant theorist regarding the institutional structures necessary for a productive and peaceful social order.
As previously noted, both at TJC and CSPC, Buchanan referenced the constitutional project established by the American Founding. It’s crucial to recall that in Federalist #1, Alexander Hamilton implored readers to determine whether their societal constitution would arise from accident and force or through reflection and choice. In this implied social dilemma, effective collective action requires us to opt for reflection and choice in our constitutional design. Buchanan agreed with this sentiment, and his research, as articulated in The Calculus of Consent, The Limits of Liberty, and The Reason of Rules, fleshed out this vision of reflection and choice regarding the societal rules governing our coexistence.
A genuinely institutional economics, then, entails integrating the rule formation process into economic analysis. This endeavor harmonized with F. A. Hayek’s approach, though it also presented interesting tensions between Hayek’s concept of spontaneous order and Buchanan’s focus on freedom through constitutional design. Yet, it is essential to return to the original mission of TJC: to utilize economic reasoning to investigate how diverse institutional configurations influence individuals’ capacity for specialization and the realization of peaceful cooperation through exchange. Furthermore, Buchanan’s initial program aimed to elevate the philosophical questions associated with government action, addressing issues of liberty, autonomy, peace, and prosperity. Economics cannot exist in isolation from philosophy, just as philosophy cannot be divorced from economics. The separation of these disciplines throughout the 20th century has come at a significant intellectual and practical cost, yielding little advantage beyond academic trivialities. This is a luxury we can no longer afford.
