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James Buchanan, RIP

James Buchanan died today at the age of 93. He is best known as the founder, with Gordon Tullock, of the "public choice" school of economic thought, which uses ideas that had been applied to market exchange and expands them into nonmarket decision making, especially politics.

The effect of public choice thought has been, at least among many economists and political scientists, to dispel misplaced romance. Public choice is built on the simple but profound insight that men do not cease to be self-interested merely because they work in a government office rather than in a business. Failing to understand the pervasive nature and consequences of self-interest leaves a country's citizens open to endless disappointment as they expect from government purity of motives and effectiveness of outcomes that it cannot deliver, including, of course, in monetary matters.

Even though public choice is a broad field, Buchanan's interests were broader still. He reflected deeply on the foundations of the market economy and the implications for economic analysis of the subjective nature of costs. Most relevant for this blog, he dabbled provocatively in monetary theory. He only half jestingly proposed basing a monetary standard on the brick as a unit less subject to tampering than national currencies (see this summary, pages 12 onward).

I never took a course from Buchanan while I was a student at George Mason University. Before I enrolled I had already absorbed some key elements of the public choice outlook. Besides, he had just won his "Nobel" Prize and was doing what most of the winners have done: spending a lot of time taking his message to the wider audience around the world that he had earned. I did attend seminars where Buchanan was present, public lectures he gave, and other events he attended, and heard about him from my classmates who took classes with him. He impressed me as someone who had had wisdom for a long time, well before its usual appearance near the end of one's career. Such people are  even rarer in universities than in the world at large.

Lars Christensen has collected some links about Buchanan.


  1. I'm rarely shocked by the deaths of people I did not know.

    I am shocked by this.

    As Paul says, rest peace Mr Buchanan.

  2. James Buchanan might have thought about how pubic central bank staffs, on fixed salaries would come to contend that deflation, or zero inflation, was the best monetary policy.

    It is in the economic interest of people on fixed salaries to proclaim the superior virtures of zero inflation or deflation—actually, to target deflation, while talking about low inflation.

    Imagine a guy at the bank of japan, risen up through the ranks, and getting effective pay raises as Japan goes through deflation.

    Indeed, central bank staffs would be fine with perma-recessions, as their salaries are safe. They can buy bigger houses, etc.

  3. Mr Cole.

    Central Banks (such as the Bank of England in 1694) were established to provide "cheaper money" (i.e. borrowing at lower interest rates) for governements.

    In the 19th century this slowly expanded to providing "cheaper money" for other sectors of the economy, such as banks, (although there been terrible experiments with such monetary expansions in the 1700s – Mr Law and so on).

    The whole point of a modern Central Bank is monetary expansion – that is what they are for.

    That is why one should smile when a Central Banker says they are "fighting inflation" – they are, in fact, the cause of inflation.

    Certainly private bankers can create "expansion of broad money" (bank credit)by, in various complex ways, lending out "money" that was never REALLY SAVED – but such "booms" are inevitably followed by "busts" and the "broad money" shrinks back down towards the "monetary base".

    Only governments (either directly or via government backed, even if supposedly "privately owned" central banks) can produce a true large scale and long lasting monetary inflation.

  4. Oh, of course, many of the most damaging monetary inflations have not really shown up in terms of "prices in the shops" as they have been ASSET PRICE inflations – the new money going to stock market prices, real estate prices and so on. The monetary inflation of the late 1920s (the Benjamin Strong inflation) and the one before the present crises (the Alan Greenspan inflation) were of this type.

    In a sensible economy where peopel are finding better (cheaper) ways to produce goods and services, prices should (generally) gradually (not suddenly) fall over time.

    Although any "price index" is, of course, going to be of limited use.

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