Public Choice and Austrian Economics

18 August 2008 at 4:41 pm 10 comments

| Peter Klein |

The Austrian school and the Public Choice or Virginia school of economics are often tightly linked, both among the lay public and within academic circles. The connection isn’t obvious, however. While members of both schools tend to have classical-liberal views on political economy, the Virginia school emerged from the Chicago public finance tradition (Buchanan, after all, was a student and disciple of Knight) and is thoroughly “neoclassical” in orientation. Public choice economists tend to look to Chicago, not Vienna, for inspiration.

Anamaria Berea, Art Carden, and Jeremy Horpedahl take a different tack, drawing out common threads in Buchanan’s and Hayek’s subjectivist approach to cost.

Cost and Choice and The Sensory Order represent tangents from the basic research programs of their respective authors, James M. Buchanan and F.A. Hayek. These seeming diversions into methodology by two political-economic philosophers help to shed light on their underlying assumptions about cost and rationality. We argue that Buchanan and Hayek, and consequently Public Choice and Austrian Economics, have very similar underlying assumptions about the nature of cost. This can help to explain other similarities between the two schools, especially regarding the role of the state. These contributions are synthesized and applied to debates over the “new paternalism” and military conscription.

Tom DiLorenzo’s 1990 paper “The Subjectivist Roots of James Buchanan’s Economics” is also worth consulting on this connection. The question, though, is whether Cost and Choice (and the later Buchanan and Thirlby-edited volume, LSE Essays on Cost) is a consistent with the rest of the public choice tradition (including Buchanan’s own work).

NB: In graduate school I was exposed to the “positive political theory” (PPT) literature associated with Riker, Shepsle, Weingast, etc. and was surprised that the Virginia school was never mentiond in the discussion. A prominent PPT scholar told me once that PPT is “scientific,” while public choice is merely “ideological” and “low-tech.” Fair or not, I think this view is widespread among younger scholars. Has anyone written a good comparison of PPT and the public-choice approach?

Entry filed under: - Klein -, Austrian Economics, Classical Liberalism, Public Policy / Political Economy. Tags: .

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10 Comments Add your own

  • 1. Fred Thompson  |  19 August 2008 at 12:47 am

    Of course, William Riker was a founder of the Public Choice Society.

  • 2. Richard Ebeling  |  19 August 2008 at 12:25 pm

    As far as I can tell James Buchanan was the only very prominent student of Franik Knight’s who went through the “Chicago” experience and actually was influenced by Knight (in comparison to being influenced by the Friedman or Stilger approach) on questions of methodology.

    While many Austrians view Knight as a critic of Austrian Economics due to his challenge to Austrian capital theory and some other issues, in fact, on methodoligcal matters he was very close to the Austrian subjectivist, anti-positivist, anti-behaviorist approach.

    Kinght’s 1924 essay on “The Limitations of the Scientific Method in Economics” comes very close to a “Misesian” perspective. And his 1956 collection, “On the History and Method of Economics” has several other essays in which his emphasis on these themes comes through.

    Thus, to the extent that Buchanan in some of hiswritings often has an “Austrian” flavor it is due to the fact that he seemed to take Knight more seriously on these methodological issues than others who studied at the feet of the Chicago giants.

    Richard Ebeling

  • 3. Peter Klein  |  19 August 2008 at 12:40 pm

    Excellent point Richard. See also this on the relationship between Knight and the rest of Chicago:

    http://organizationsandmarkets.com/2007/04/24/frank-knight-and-the-chicago-school/

    One of my favorite methodology quotes is this one from Knight (1956):

    [T]he first fact to be recorded is that [economic] reality exists or “is there.” This fact cannot be proved or argued or “tested.” If anyone denies that men have interests or that “we” have a considerable amount of knowledge about them, economics and its entire works will simply be to such a person what the world of color is to the blind man. But there would still be one difference: a man who is physically, ocularly blind may still be rated of normal intelligence and in his right mind.

    Hardly a Friedmanite position!

  • 4. Peter Boettke  |  20 August 2008 at 6:44 am

    When I spent the academic year 1992-1993 at Stanford’s Hoover Institute, I was “shocked” to learn from Barry Weingast this bias against Virginia Political Economy. So I went on a serious study of Riker’s work, and couldn’t believe that folks like Barry or John Ferejohn would make this distinction given what Riker wrote in say, Liberalism Against Populism. I was sympathetic to Riker’s arguments, but certainly didn’t see them as “scientific” compared to the more “ideological” work of Buchanan and Tullock.

    However, one can see that Buchanan’s work is “normative” in his constitutional political economy. But it is a careful dance between the pure positive analysis of play within rules, and the examination of alternative rules that may improve play. Most critics miss the tacking back and forth in Buchanan’s constitutional exercise, and they also misunderstand his use of the homoeconomicus assumption in constitutional structure. It is not a description of man, but an assumption in building robust constructions against worst-case situations.

    On the original post — the Chicago connection in Virginia is well-known, but it is first the “older” Chicago tradition (not Becker-Stigler) that is the connection for Buchanan and Tullock. Second, both Buchanan and Tullock credit Mises’s HUMAN ACTION with pointing them to the idea of studying politics from a methodologically individualist point of view.

    Third, through Mont Pelerin and Volker Fund conferences they were exposed to Mises and Hayek, and in particular the various drafts of Hayek’s The Constitution of Liberty.

    Fourth, consider the work of products of Buchanan and Tullock and their connection to Austrian economics. Richard Wagner and Randy Holcombe stand out in this regard. But there are also people like Tom DiLorenzo, and also others such as Tyler Cowen and myself who have strong cross educational and research connections to the Virginia and Austrian traditions.

    Fifth, for shameless self-promotion. I have written several essays over the years about this Viriginia/Austrian connection and even edited a volume of the RAE (with Ed Lopez) on this. I guess I would recommend my paper “James M. Buchanan and the Rebirth of Political Economy,” in Against the Grain: Dissent in Economics edited by Steve Pressman and Ric Holt (1998).

    The conference at FEE in September should be an excellent discussion.

  • 5. Richard Ebeling  |  20 August 2008 at 8:50 am

    Buchanan has had little patience with the standard neo-classical approach and its “techniques.” He evan has felt that too much of Public Choice theory has been enveloped by the mainstream conception of how to do economics.

    The following is from a 1983 essay by Buchanan:

    “As it is practiced in 1983, economics is a science without purpose or meaning. It has allowed itself to become captive of the technical tools that it employs without keepiing track of just what it is that the tools are to be used for. In a very real sense, the economists of the 1980s are illiterate in basic principles of their own discipline. . . Their motivation is not normative; they seem to be ideological eunuchs. Their interest lies in the purely intellectual properties of the models with which they work, and they seem to get their kicks from the discovery of proofs of propositions relevant only to their own fantasy land. . . Our graduate schools are producing higher trained, highly intelligent technicans who are blissfully ignorant of the whole purpose of their alleged discipline. They feel no moral obligation to convey and transmit to their students any understanding of the social process through which a society of free persons can be organized without overt conflict while at the same time using resources with tolerable efficiency.”

    This is a rather damning statement. And one that I think for the most part would still apply to the profession of economics as it is taught and practiced almost 30 years after Buchanan wrote these words.

    Richard Ebeling

  • 6. Peter Klein  |  20 August 2008 at 9:18 am

    I agree with Richard and Pete that Buchanan and his followers can’t be classified, strictly speaking, as neoclassical economists, in the contemporary MIT sense. However, I think the Virginia-Vienna relationship is one between sympathetic fellow travelers, not members of the same “school.” I view Virginia political economy as neoclassical economics, but in the older, pre-1980s sense of neoclassical — roughly, the postwar Chicago tradition as extended to places like UCLA, Washington, Texas A&M, and Clemson. Call it Alchian and Allen neoclassical, if you like — not quite the same as today’s neoclassical economics. But its underlying utility and value theory, its price theory, its understanding of competition and monopoly, and so on are not in the Austrian tradition of Menger, Boehm-Bawerk, Wicksteed, Fetter, Davenport, Clark, Mises, Rothbard, etc.

  • 7. Richard Ebeling  |  20 August 2008 at 12:54 pm

    I think that part of Buchanan’s problem is precisely his difficulty in deciding what type of discipline is economics. This comes out clearly in “Cost and Choice” and his introduction to “LSE Essays on Cost.”

    He understands and considers fundamental the “subjectivist” quality to cost, that it has no measurable or “objective” quality to it. It always remains the “might-have-been” in the actor’s mind that nonetheless is the alternative “weight” that is on the other side of the scale when the decision has been made to do something else instead.

    But he is bothered that this completely undermines what he considers to be an equally reasonable persuit of some degree of empirical “predictability” and content.

    This tension is what has made it difficult for Buchanan to say that he is an “Austrian” or to fully endorse the Austrian approach.

    Like many mainstream economists, when confronted with a consistent Austrian perspective he raises his hands in frustration and says, “Then what, as economists, are we supposed to do?” (What is our “research program,” what is is “operationally meaningful,” then, in economics?).

    That question is the neo-classical element that he has not been able to get beyond. And I say this as someone who, as an “Austrian,” has learned a great deal of much value from Buchanan.

    Richard Ebeling

  • 8. Michael Thomas  |  26 August 2008 at 2:38 pm

    Dr Klein,

    For clarification, is the “Fellow traveler” description original to Vaughn (1994 – Austrian Economics in America)? It appears in quotes there as well. Is there a way to cite this, was this a self-imposed description by Buchanan or some other such back story?

    I would be interested in detailing the history of this distinction for my own knowledge.

  • 9. Peter Klein  |  26 August 2008 at 3:16 pm

    Michael, I’m sorry, I don’t know. I have seen Buchanan described many times as a fellow-traveler of the Austrian school, but I can’t say who first used the term in this context.

  • 10. Michael Thomas  |  26 August 2008 at 3:46 pm

    Thank you for the responce.

    I did find the term in a review of Vaughn’s essay from 1982 by Bruce Caldwell, I will follow up on this.

    “…(to borrow a phrase from another context and time) Austrian “fellow travelers.”

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