James M. Buchanan

Nobel 1986 | Public choice theory: How much freedom should politicians have?

This is not about James Buchanan, the 15th President of the United States, this is about the economist James Buchanan, the leading figure in public choice theory. The connection to politics, however, is obvious. Buchanan’s work transformed the structure of political decision making, looking at how constitutional rules should be changed and how much power politicians should be given. Though remaining something of an outsider all his professional life, he fundamentally changed the way economists think about the nature of political processes and frequently argued for smaller government, lower deficits and fewer regulations.

James M. Buchanan

James M. Buchanan

The Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel, 1986

At a glance

Born: 1919, Murfreesboro, Tennessee, USA

Died: 2013, Blacksburg, Virginia, USA

Field: Public Finance

Prize-winning work: Developed the contractual and constitutional basis for the economic and political decision making theory

Old school: Handwrote his books before doing a revised version on his typewriter

A-ha moment: Realized that the prevailing view on public debt was all wrong while in a hotel in Rome with a broken lift and no air-conditioning

A farmer’s life: Had 60 cows on his farm in Virginia

How does self-interest impact political decisions?

It was at the University of Chicago that Buchanan, still a young researcher of public finance, first read the work of Swedish economist Knut Wicksell. He would later describe it as the most exciting intellectual moment of his career and the starting point of his journey to winning the prize in 1986. Wicksell offered a different way of looking at the structures in which political decisions were made and encouraged economists to see politicians as humans, not saints.

How do politicians work?

Buchanan, who kept a picture of Wicksell in his office, decided to spend much of his career thinking about how politicians and bureaucrats’ self-interest would affect their decision making.

“Armed with Wicksell’s wisdom, I could dare to challenge the still dominant orthodoxy,” he said. “I called upon my fellow economists to postulate some model of the state, of politics, before proceeding to analyze the effects of alternative policy measures.”

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How does Public Choice Theory challenge the traditional view of politicians?

Though public choice theory wasn’t a new branch of economics, Buchanan became its strongest proponent and leading figure. In his words, public choice gives “a new insight into political reality.” He emphasized that it was overly simplistic to view politicians as benevolent civil servants, looking to make the world a better place, with the greater good of everyone as their only objective.

“Politicians do in many cases try to further what they think is the interest of the whole group, but in a sense, they’re just like the rest of us,” Buchanan said. “Sometimes they’re motivated in terms of their own private interest, just like a businessman.”

Why doesn’t democracy work perfectly well?

Prior to Buchanan’s work, no economist had seriously taken this idea into account. Economic sciences thought about market players as individuals caring for utility maximization, or in other words, consumers trying to get the best value while spending as little as possible. Political behavior was not analyzed in the same way. Knowing that someone who behaves selfishly in other areas of life will do so in their political life as well, Buchanan emphasized that democracy couldn’t always work as perfectly as predicted. He suggested setting up constraints on the authority or the power of politicians. “They will operate depending on what rules they’re working within,” he said. “And so we need to think about that when we lay down the structure of the rules.”

How can constitutional rules be modified?

Buchanan often referred to politics as a game and the constitution as the rules of the game. In his work, he examined how constitutional structures could be modified.

“We must have a strong government,” he said. “But we can restrict it within constitutional limits, by division of power, by federal structures, by competition among local units.”

A libertarian within limits 

Do governments have too much power in their hands?

As a finance economist, Buchanan had been working mostly on tax policies, government spending and public debt. Part of his research dealt with the question of how much power the government should have. He felt strongly that governments were concentrating too much on power, which he saw as a threat to liberty.

“It’s more and more invasive, extracting more taxes from us, regulating every aspect of activity, while being unable to put its own fiscal house in order,” he said.

To Buchanan, Switzerland is a good example of a country where checks and balances work. “There’s very little complaint about it being an unjust society,” he said. “Without a monstrously large government, or a strong central bureaucracy, the government has a minimal degree of interference in peoples’ lives. That’s something that I value.”

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How should people participate in political processes?

Buchanan believed in people taking part in the political discourse in an orderly fashion and rejected rebelling as a course of action.

“For society to be viable, it needs to obey whatever rules are in existence and then try to change those rules in a gradual process,” he said. “Everybody should be very skeptical of people who purport to have the authority to tell them how they ought to organize their lives,” he advised.

Beware of those who come around saying this is the way we ought to do things.

“In the political process, a constitution must be able to balance everyone’s interest, trying to agree on a set of rules under which we can carry on our separate activities, and not have too much negative influence on each other,” he said.

How Did James Buchanan's European experiences shape his views on Economics?

Compared to other economists at the time, Buchanan had close ties to European researchers and academic communities. He spent time in Italy and Britain to learn more about the domestic culture and the continent’s relationship between the individual and the state.

What does the future hold for European integration?

In the 1980s, Buchanan felt that Europeans didn’t seem willing to sacrifice national sovereignty and he hoped this would change. “Europe may miss the opportunity I think it has,” he said. “The nation states can still exist as very important autonomous units, but within a federal structure."

Europe needs to give power to the central authority to enforce integration, free trade and some degree of monetary integration.

James Buchanan and the evolution of Public Choice Theory

While Buchanan’s work was outside mainstream economics at the time, it didn’t bother him. “I’ve never been very much attracted to going along with what’s fashionable,” he explained. “I go along with whatever interests me.”

Born in Tennessee, he stayed in the south all his life, teaching and researching at the George Mason University in Fairfax, Virginia, far from America’s Ivy League universities. He never advised a political party or held a government job. “I’m perhaps as near to being an ivory tower academic as you’ll find,” he said.

At his farm in Virginia, he found solitude and isolation that he enjoyed. “I like to grow my own vegetables and have my own beef,” he said. “I don’t want to be dependent on people.”

I do embody something of the American myth of social mobility. For how many boys from middle Tennessee, educated in tiny, poor, and rural public schools, have received Nobel Prizes?

Is there a scientific solution to the problems of society?

When the Berlin Wall came down in 1989 and the Western world was changing fast, his mindset started to change from pessimist to something softer. “There’s always room for pessimism but we need to be optimistic, and I am,” he said. “Living together with individual liberty, reasonable prosperity, peace and justice. These aren’t scientific problems.”

There’s no solution out there waiting to be discovered. The mindset that is required is not a scientific one, it comes from dialogue.

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