Buchanan as Subjectivist

[Author Affiliation]Karen I Vaughn, * George Mason University, 11609 Forest Hill Court, Fairfax, VA 22030, USA; E-mail: kvaughn@gmu.edu1. IntroductionIn many respects, I am an unlikely contributor to this session. I was never James Buchanan's student, I was not a member of the Public Choice Center, and, more to the point, I contributed very little to the public choice literature.1 I am known best as a historian of economic thought and a sympathizer with the modern Austrian school of economics, neither of which are characteristics of a typical public choice economist. Yet I can say with full confidence that Jim Buchanan was one of the two most important influences on my academic life. That the other was Friedrich Hayek should make it clear that it was the subjectivist side of Buchanan's work that most intrigued and challenged me. My tribute to James Buchanan will be an account of two areas in which Buchanan's subjectivism had a profound influence on my understanding of economic theory and political economy. It is no exaggeration to say that had I not encountered James Buchanan's view of the subjective foundations of economic theory at an early stage of my intellectual development, my career would have taken a very different and much less interesting course.I suspect that Buchanan, the subjectivist, is less well known to most readers than Buchanan, the public choice theorist. Yet the tension between the subjective nature of human experience and the requirements of predictive science was an undercurrent in much of his work and the focus of a number of articles on economic methodology. The Collected Works of James M. Buchanan comprise 20 volumes, and while most of them deal with issues such as public finance and constitutional economics, a significant subset of his work concerns methodology. In addition to his iconic Presidential Address to the Southern Economic Association, "What Should Economists Do?," articles such as "Is Economics the Science of Choice?," "The Domain of Subjective Economics: Between Predictive Science and Moral Philosophy," and "Natural and Artifactual Man" demonstrate clearly his dissatisfaction with the methods and claims of conventional theory. And despite the fact that he was probably best known as one of the originators of the field of public choice, in answer to his own question, he argued time and again that economics was not a science of choice. In "What Should Economists Do?," he argued that the subject matter of economic theory was exchange rather than choice. While in that essay his focus was on the need to understand the institutions of exchange in a market economy, complementary to that claim was his growing understanding of the subjective nature of human choice and its implications for economic analysis. His most complete treatment of the subject is, of course, his volume Cost and Choice (Buchanan 1969).2. Subjective CostCost and Choice is a short but important book that is undeservedly overlooked even by Buchanan's admirers. This is not surprising because it is also a subversive book. It questions the very foundations of neoclassical economics in ways that even Buchanan was reluctant to acknowledge.Cost and Choice was Buchanan's attempt to revive a theory of cost prevalent at the London School of Economics during the 1930s and 1940s.2 With roots in the work of Carl Menger, Phillip Wicksteed, and H. J. Davenport, the cost tradition he described flourished in the writings of Lionel Robbins, Friedrich Hayek, Ronald Coase, G. F. Thirlby, and later G. L. S. Shackle and Jack Wiseman. Buchanan's aim was to show how their subjectivist understanding of cost pointed to an important confusion in the neoclassical theory. Economists agree that costs are the value of forgone alternatives, but they measure those costs in terms of observable resource prices. But are money prices really a good proxy for the costs of forgone alternatives? …