James Buchanan Methodology

James Buchanan Methodology

Buchanan's methodology is of crucial importance to an under­standing of his work for it both indicates the questions to be asked and influences the answers that are found. He is a self-declared adherent to methodological individualism. This is far more than the application of a mere tool kit for it also embodies a set of beliefs. Within this framework 'Choice . . . cannot be predeter­mined and remain choice' (Buchanan, 1969b) and only an individual can identify his 'goods' and 'bads'. Further an individual does not know his complete personal ordering for his utility function; if he did then he could communicate this to some external machine that would perform the act of selection. But this would not be choice. Thus, reasoning, purposeful individuals are perceived as the ultimate decision makers in both private and collective action. This being the case, individuals require the maximum freedom of choice, i.e. of the arbitrary will of another. Buchanan explicitly recognises that individuals are unequal (1971). They differ as to tastes, capacities and their environmental setting. Further, they will have non-uniform expectations, knowl­edge and interpretations of the course of events. From this emerges another basic block in Buchanan's methodology, the subjective nature of costs, benefits and thus choice. Unequal individuals will appraise the value and cost of any activity very differently and importantly these subjectively derived sums will be unpredictable to an external observer (Buchanan and Thirlby, 1973).

Since individuals are concerned with freedoms generally, these will enter their personal utility functions which now contain both economic and non-economic arguments. A choosing individual is thus concerned with trade-offs between goods and between goods and non-economic arguments. So an individual's utility is influenced both by the goods and services he receives and supplies and by the institutional setting. Changes in this setting, or the rules of the game, affect someone's utility just as changes in the quantity of goods he receives would. In Buchanan's schema individuals are neither solely hedonistic nor materialistic, they can espouse any motivation as long as it does not take into account the other participant in an exchange.

Through exchange individuals can achieve improvements in their position. This may involve private or joint actions. But for Buchanan that which emerges from exchange is merely that which emerges. From his individualistic viewpoint the definition of 'good', 'bad' and 'better' relate to how an outcome emerges rather than to what the outcome is. No outcome is 'bad'; rather the process used to achieve it may be 'bad'. Any reduction in an individual's freedom of choice is regarded as 'bad' and any increase 'better'. But this does not mean there should be no restrictions on individuals. Buchanan recognises that society cannot exist without some minimum set of rules: the problem for Buchanan is to keep the minimum from creeping up. But at the very least individuals must accept each others' property rights. Involved here is another important feature of Buchanan's analysis, the concept of mutual agreement and society's search for it.

Exchange can only be effective if individuals acknowledge the mutual existence of others and admit their property rights. If mutual agreement on this point is not reached exchange will break down and society will degenerate into the anarchy of all against all. Private exchange proceeds under implicit unanimity. If any individual objects to a particular transaction he can always offer better terms to one of the participants. To the extent that third parties do not interfere, implicit unanimity is reached. Mutual agreement is of great importance in Buchanan's analysis of collective decisions. Clearly if a particular proposal is carried unanimously no one feels damaged by it and somebody, if not everybody, rates it an improvement. Palpably, at this collective level, explicit unanimity provides a criterion for 'better' and satisfies the Pareto principle (Buchanan, 1962b).

Altogether, Buchanan's emphasis on unequal individuals who evaluate possibilities subjectively within the context of changing rules of the game, denies the existence of a 'truth' or a 'public interest' which awaits discovery. It also negates any notion of an organic state. His concept of the state is purely individualist. Collective action is taken when individuals choose to use government to achieve some purpose jointly rather than acting individually. This position brings Buchanan into conflict with many economists for in effect he is questioning the role of the political economist (1964).

Economists have a predilection for giving advice. Advisory posts with governments are keenly sought after and in this capacity the maximisation of social utility is a universally accepted goal. But there are many ways of achieving and of conceiving this state of affairs. Utilitarians, using measurable and comparable utility functions, found no difficulty in advisory posts. However the positivist revolution, with its emphasis on scientific hypotheses testing, arrested the progress of those operating within the utilitarian perspective. The upheaval this caused and the debates it generated were eventually resolved for some in the 'new' welfare economics.

By accepting the Bergson-Samuelson formulation of the social welfare function (SWF) many economists were once again in a position to give advice. Within this framework the notion of Pareto Optimality is used to define optimal and sub-optimal states of the economy. The purpose of the SWF is to order all possible states of the economy and from this list a best or Pareto Optimum State is chosen (or rather, recommended). The most important assumption here is that the SWF has conceptual and operational meaning.

The ordering of the SWF is carried out by some external observer who performs this operation on the basis of his objective pay-off matrix for all possible movements. He can perform this task because he assumes all individual choices are fairly predictable. So there are two further assumptions; omniscience (on the part of the observer) and 'economic' man.

Both the SWF and the condition of Pareto Optimality, with its associated 'market failure', has provided many economists with a wide scope for the identification and improvement of 'imperfection'. Generally this has involved a shift of activities from the market to a political agency and some restriction on private behaviour, i.e. a loss of choice. To help in their work, economists have developed a range of scientific techniques in which some objective function is maximised subject to a set of constraints. The solution to the calculus is then proposed to government as the best course of action.

Given Buchanan's individualist standpoint he naturally rejects the above outline as an appropriate role for a political economist (1959); 'this is a bridge that should never have been crossed' (1975b). Subjectivism flatly denies the ability of any external observer to order states since only individuals themselves can know their own utility. For Buchanan, the whole approach is erroneously centred on a materialist viewpoint of unmeasurable private and social costs and benefits. The behaviouralist assump­tion of'economic man' embodied in the economist-as-predictor is for Buchanan a complete rebuttal of the concept of choice (1969a), and he denies that shifting activities from the market to the public sector ensures improvements (1962a).

Besides these methodological and theoretical assaults Buchanan raises a very practical issue. He notes that, in the above role, political economists are acting without regard to politics and the political process. They are making recommendations to a benevolent despot. This is one of his criticisms of Keynes (Buchanan and Wagner, 1977) and interestingly Kalecki searched all his life for a new Prince to whom he could play a Machiavelli.

What then is Buchanan's perspective on the role of the Political Economist? He denies the existence of one decision-maker who can choose and maximise for society. He does not accept the notion of a known society utility function or that an aggregation of differing individuals' utility functions can be ordered into an SWF. It was thus no surprise to Buchanan when Arrow discovered the Impossibility Theorem (Buchanan, 1954a). In his schema the role of the political economist revolves around individuals not a super-individual being.

Individuals hold various property rights which allow them to do certain things and exclude others from certain actions. With these property rights individuals engage in exchange whenever they perceive the possibility of gains. In doing so, they make implicit and explicit contracts. If the outcome of the multifarious contracts is identified as being sub-optimal or inefficient Buchanan's political economist would not recommend some course that constrains individuals. Buchanan's response is to examine the rules of the game, searching for organisational-institutional changes and modifications to the structure of property rights. The purpose is to discover prospective oppor­tunities for enlarging the scope for potential trades. This ap­proach has had a considerable influence on proposed remedies to the problem of pollution.

The criterion used to decide whether to introduce a proposal on rule changes is of course whether it achieves a consensus (Buchanan, 1962a). Any unanimously and deliberately chosen modification is clearly an improvement, for everyone expects to be in a better position after its enactment. Even in the case where someone feels harmed by the proposed changes, mutual agree­ments can be attained if the individual is compensated. And compensation need not be pecuniary, it can also take the form of further modifications in the structure of rights. In this way individuals enter into contracts with one another either explicitly or implicitly.

Buchanan thus sees the role of the political economist as someone probing for changes in the rules of the game that will provide mutual gains from trade. He is crucially concerned with how property rights emerge (between individuals and between individuals and the state) and how they are modified. Within the realm of collective action he focuses on individuals' responses to different collective institutions, fiscal structures and decision rules. His subject matter is positive Public Choice, inhabited by individuals holding property rights and with a propensity to trade who enter into voluntary contracts to their mutual benefit.