James Buchanan’s views on public finance have already been analyzed and they are quite well known, as are their origins and roots. However, nothing has ever been said about why Buchanan chose public finance in the first place. The first goal of this paper is to show that Buchanan had made this choice before arriving at Chicago. We show how Carlton C. Sims and Charles P. White influenced him. We also show, by analyzing Buchanan’s M.A. thesis, that he was not only interested in public finance but was also primarily concerned by ethical questions and defended a bureaucratic centralized solution to solve the problem he was discussing – how to share the benefits collected from a gasoline tax among Counties. This helps to understand that Buchanan did not choose to study public finance to learn how to fight government intervention. Quite the contrary: it was to legitimate it. Second, we also demonstrate that a lot of the ideas that will matter for Buchanan in his career – the importance of ethics and the principle of an equal treatment for equals, the need to link taxes to benefits, the importance to adapt the scale of provision of a public good to the type of public good – were already present in this first work.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
“I was indeed converted by Frank Knight” (2007, 68) and, more precisely, “I attribute this conversion directly to Frank Knight’s teachings” (2007, 71). Then, elsewhere in his autobiography, Buchanan added that he “was forced to fully absorb the simple principles of market allocation … [t]rough the instruction of Frank Knight and Henry Simons, my Chicago teachers. (2007, 216)
With “Miss Ordway (to us)”, Buchanan learned that he knew how to write and that his “relative strength was in expository writing not in fiction” (2007, 42–43). With Eva Burkett, he learned “poetry and drama” (2007, 43) in particular Thomas Hardy’s and also “acquired … the philosophical stance” that allowed him to fully grasp “the ideas of the philosophers of the eighteenth-century Scottish Enlightenment, from which classical political economy emerged” (2007, 43). It was important since “[i]t became the basis of the intellectual bonding with Frank Knight” (2007, 43). For his part, Mebane taught Buchanan physics in his senior year. Buchanan noted that what he appreciated was “an analysis rooted in reality and taught by a man who conveyed something of the excitement of science” (2007, 44).
In other words, this confirms another claim Buchanan had made but had never been demonstrated: that, before arriving at Chicago, he was a “socialist” – “[t]hose of us who entered graduate school in the immediate postwar years were all socialists, of one sort or another.” (2007, 72)
He did not only participate in the annual meetings of the Association but was also elected “Recording Secretary” in 1939 and, in 1941, he was on the “Committee on Local Arrangements for the Annual Meeting”He regularly participated in the annual meetings of the Association. In 1934, he was in “a regional committee … appointed to encourage and coordinate a program of research growing out of the emerging problems of the Southern region” (Ogg 1934, p. 925). In 1939, he even chaired a session entitled “Quasi-Legislative and Quasi-Judicial Agencies in State Government” (“News and Notes.” The Journal of Politics 1 (3): 345). A member of the association, he became “Recording Secretary” in 1939 (News and Notes, The Journal of Politics, 1 (1), Feb., 1939). In 1941, he sat on the Committee on Local Arrangements for the Annual Meeting (News and Notes, The Journal of Politics, 3 (1), Feb., 1941), 128).
When Sims died in 1960, Professor Norman Parks of Middle Tennessee College presented a memorial resolution for him (see program of the 1960 annual meetings, Thirty-Second Annual Meeting Southern Political Science Association, Journal of Politics, 23 (1), pp. 191–196).
The process started in 1949 when the legislature of Tennessee “passed an act calling for a vote on whether to have a limited convention” to revise the constitution by focusing on “9 topics–the govemors’s term, item veto on appropriations, legislative pay, apportionment, legislative quorum, the amendment process, the poll tax, classification of property for taxation, and municipal home rule and city-county consolidation.” In October 1949, Sims participated in meetings organized by The Southern Institute of Local Government of the University of Tennessee to discuss the revision. But, in “Cummings v. Beeler, 189 Tenn. 151 (1949), the act was upheld. In the November 1949 election the convention was narrowly defeated.” In 1951 another act was passed, but it left out the subjects of apportionment, taxation and the legislative quorum. The convention was “authorized to consider the amending clause, the compensation and expenses of legislators, the veto power, the right of suffrage, home rule, and local governmental consolidation.” (Prendergast 1953, 279) It was approved by the people.” (http://harryphillipsaic.com/wp-content/uploads/2013/02/1_TNConstitutionHistory.pdf) In November 1952, Sims was elected as delegate to Limited Constitutional Convention that met in April 1953 to revise the Constitution. At that time, the constitution of Tennessee “was the oldest unamended constitution in the country” and it was “apparently the longest period such a document has ever stood unamended anywhere in the world” and “[a]t that time it (http://harryphillipsaic.com/wp-content/uploads/2013/02/1_TNConstitutionHistory.pdf). Buchanan was born and raised in a State renowned for the stability of its institutions.
He remains known for having edited a history of Rutherford County for Tennessee’s 150th anniversary (1947).
The reason that was given was that, “[i]n the south, counties are very small, because we did not have the township and the county was our primary unit.” (Wager 1933, 333)
For instance, the number of cities having a population of 30,000 or more inhabitants – for which the United States Bureau of the Census collected statistics – had dramatically evolved: in 1790, when the first census was made, only New York had a population of more than 30,000 inhabitants. The figure was of 19 in 1850 and it had raised to 227 in 1918. (see Goodell 1920, 265)
As Anderson noted: “[g]overnments everywhere find themselves confronted daily with unprecedented demands for action. The expansion of public activities in the past fifty years has been nothing short of revolutionary” (1926, 3)
Goodell noted: “[e]verybody knows that the cost of operating our cities has increased rapidly, but the actual facts are startling and little appreciated” (1920, 266).
The problem was first treated in terms of fiscal policy. In other words, basically, what was suggested was a problem in public finance. Hence, it is not a surprise if “tax commissions” were appointed organized to deal with the issue. They came up with the suggestion that the taxes collected at the state level to proceed to inter-area transfer and to cross-subsidize counties but that was illegal in certain states – for instance, in Florida in 1930, the Supreme Court of the state “said that money paid into the state treasury by one county cannot be taken to help out a less fortunate count” (Field 1930, 678).
Havard and Diamant made the same claim: “the structure of local government in the United States is seriously inadequate… the units are too small, too numerous, and tend to overlap even to the point of multiple layers in some places.” (1956, 983)
Tennessee had “its share of small uneconomic counties” (Satterfield 1940, 26)
John Manning noted: “We are inclined to believe, however, that the county in Tennessee is tending, more and more, to become a purely administrative unit rather than a unit of local self-government; but, fortunately or unfortunately, that point has not yet been reach” (1930, 171).
To Manning “county government in Tennessee costs nineteen times the amount spent for state government.” (1928, 733)
One finds the claim that “the people of one-time James county now pay taxes at the rate of $1.40 on the hundred, as compared with $3.80 before the consolidation” (Manning 1930, 181).
To him, “we should use our talent to get the older functions of local government transferred to the State, and bring the remainder under close State administrative supervision. In this direction lies greater economy and efficiency in performance of those governmental functions that have ceased to be local, or those that lie on the border line between the county and the State.” (1938, 427–426) Functional consolidation was more successful than geographical consolidation (Snider 1937, 899). And city-county consolidation was much more successful.
“County consolidation proposals have also been made as a result of studies in Alabama, Georgia, Mississippi, and North Carolina.27 From these various tudies and surveys, it has become apparent that at least half the counties in the South do not have sufficient area, wealth, or population for the most effective conduct of county services.” (Satterfield 1948, 521)
White noted that “[t]he tobacco tax is earmarked for schools, but provides only a fraction of the amount required” (1931, 244)
In his essay Dirt Roads to Dixie (1991), Howard L. Preston quoted a passage from William Faulkner’s novel The Reivers (1963), to illustrate the problem roads were in the South, explaining that “[u]nimproved roads were one of Faulkner’s metaphor for a backward, underdeveloped South” (1991, 13). Preston added that “by 1904, only a fraction over 4%, or 31,780, of the 790,284 the miles of public roadways in the South were classified as “improved. And, when one considers that most of this so-called improved road mileage was within urban rather than rural countries and consisted of stretches of roads that were macadamized or graded and covered with a thin layer of gravel or topsoil rather than hard-surfaced, it is not difficult to understand how backward the South really was” (1991, 13)
John P. Buchanan was the first president of the Tennessee chapter of the Farmer’s Alliance, a Texas based organization, just after it had opened a branch in Tennessee in 1888. The next year, partly as a consequence of his efforts, the Farmer’s Alliance merged with the rival Agricultural Wheel – a farm organization founded in Arkansas in 1882 that had opened a branch in Tennessee in 1884. The Farmers’ and Laborers’ Union (FLU) – known as the Alliance – was born. It was a political organization aimed at helping the “laboring masses” (Morgan 1891, 260) – farmers, mechanics and all people working in rural activities.
The first association was the East Tennessee Good Roads Association and it was created in 1901. In 1912, the American Highway Association listed thirteen affiliated good roads organizations in Tennessee.
According to this act, federal funds were provided to the states to finance their roads and highways. The federal share was 50% of the amount spent by the state, which means that the latter would have to spend the other half of the amount.
Buchanan mentioned studies conducted by the Tennessee Municipal League that concluded “that municipalities are entitled to a share of the gasoline tax fund.” (1941, 5) The focus on “municipalities” implied that these studies could not be “entirely complete” (1941, 5) and the very fact that they were sponsored by a league of municipalities meant that they were “necessarily biased in one direction.” (1941, 5)
Vlad Tarko (2017) argues that Buchanan and Tullock had already put forward this idea in The Calculus of Consent (1962, 292–293). We thus show that Buchanan had the idea even earlier.
For instance, he explained that “[w]here expenditure is made for purposes of general welfare (national defense, internal security), the benefit principle leads nowhere at all; and, where the government undertakes deliberately to subsidize certain classes (the economically unfit) or certain kinds of consumption (education, recreation),taxation according to benefit is sheer contradiction” (1938, 4).
Simons added: “Probably no convincing case can be made for substantial extension of the place of the good ad rem levies in the whole system.” (1938, 40)
The fiscal residuum is the difference “between the economic value of the burden imposed by “government” on the one hand, and the economic value of the services rendered to the individual on the other.” (1947, 21)
From this perspective, “[t]he best measure of need probably is the mileage of those roads upon which the monies are to be expended, and the relative traffic densities upon these roads.” (1941, 89)
The other members of the committee were Theodor W. Glocker and V. Donald Goetz.
Askew, J. T. (1933). County consolidation and the cost of government. Proceedings of the Annual Session (Southern Political Science Association), 6(October 26–28), 36–42.
Blough, R. (1944). Economic Research and Tax Policy. American Economic Review, 34(2), Supplement, Implemental Aspects of Public Finance), 1–21.
Bradshaw, W. L. (1932). The county consolidation movement. Southwestern Social Science Quarterly, 12(4), 321–327.
Bromage, A. W. (1931). Notes on rural local government: The crisis in county government in Michigan. American Political Science Review, 25(1), 135–145.
Buchanan, J. M. (1941). Gasoline tax sharing among local units of government in Tennessee. Master’s Thesis, University of Tennessee. hDp://trace.tennessee.edu/utk_gradthes/2683.
Buchanan, J. M. (1947). A theory of financial balance in a federal state. In Mimeo,Buchanan archives. Special Collections: George Mason University library.
Buchanan, J. M. (1948). Fiscal Equity in a Federal State. Dissertation, University of Chicago.
Buchanan, J. M. (1949). The pure theory of government finance: a suggested approach. Journal of Political Economy, 57(6), 496–505.
Buchanan, J. M. (1950). Federalism and fiscal equity. American Economic Review, 40(4), 583–599.
Buchanan, J. M. (1952). The pricing of highway services. National Tax Journal, 5, 97–106.
Buchanan, J. M. (1956). Private ownership and common usage: The road case re-examined. Southern Economic Journal, 22(3), 305–316.
Buchanan, J. M. (1959). Positive economics, welfare economics, and political economy. Journal of Law & Economics, 2, 124–138.
Buchanan, J. M. (1962). Politics, policy, and the pigovian margins. Economica, 29(113), 17–28.
Buchanan, J. M. (1979). Politics without romance: A sketch of positive public choice theory and its normative implications. Zeitschrift des Instituts für Höhere Studien, 3, B1–B11.
Buchanan, James. M. 2007. Economics from the Outside In: “Better Than Plowing” and Beyond. Texas A&M University Press.
Buchanan, James M. and Gordon Tullock. 1962. The Calculus of Consent: Logical Foundations of Constitutional Democracy. Ann Arbor: Michigan University Press.
Combs, W. H. (1940). City-County separation and consolidation in Tennessee. Tennessee Law Review, 16, 217–228.
Econlib. (2002). James M. Buchanan, The Concise Encyclopedia of Economics, http://www.econlib.org/library/Enc1/bios/Buchanan.html.
Field, O. P. (1930). State constitutional law in 1929-1930. American Political Science Review, 24(3), 666–686.
George, Ralph E. (1916). Increased Efficiency as a Result of Increased Governmental Functions. Annals of the American Academy of Political and Social Science, 64, Public Administration and Partisan Politics (March), 77–88.
Gilbertson, H. S. (1917). The county: The "dark continent" of American politics. New York: The National Short Ballot Organization.
Goodell, J. M. (1920). The magnitude of the American municipal water supply business. Journal of the American Water Works Association, 7(2), 264–273.
Johnson, M. (2005). Wicksell’s Unaminity rule Buchanan’s dominance considered. American Journal of Economics and Sociology, 64(4), 1049–1071.
Johnson, M. (2006). The Wicksellian unanimity rule: The competing interpretations of Buchanan and Musgrave. Journal of the History of Economic Thought, 28, 57–79.
Johnson, M. (2014). James M. Buchanan, Chicago, and post war public finance. Journal of the History of Economic Thought, 36(4), 479–497.
Johnson, M. (2015). Public Goods, Market Failure, and Voluntary Exchange. History of Political Economy, 47(annual suppl 1), 174–198.
MacLean, N. (2017). Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America, New York: Viking.
Manning, J. W. (1928). County consolidation in Tennessee. American Political Science Review, 22(3), 733–735.
Manning, J. W. (1930). Governance in Tennessee counties. Southwestern Political and Social Science Quarterly, 11(2), 173–181.
Manning, J. W. (1932). The progress of county consolidation. National Municipal Review, 21(8), 510–514.
Marciano, A. (2013). Why market failures are not a problem: James Buchanan on market imperfections, voluntary cooperation, and externalities. History of Political Economy, 45(2), 223–254.
Martin, J. W. (1923). The gasoline tax. The Bulletin of the National Tax Association, 9(3), 73–87.
Medema, S. G. (2005). Marginalizing’ Government: From La Scienza delle Finanze to Wicksell. History of Political Economy, 37, 1–25.
Morgan, W. S. (1891). History of the Wheel and Alliance and the Impending Revolution, St Louis: C.B. Woodward Company.
Ogg, F. A. (1934). Personal and miscellaneous. American Political Science Review, 28(5), 919–929.
Olson, M. (1969). The principle of ‘fiscal equivalence’: The division of responsibilities among different levels of government. American Economic Review, 59(2), 479–487.
Ostrom, V. (1969). Operational federalism: Organization for the provision of public services in the American federal system. Public Choice, 6(1), 1–17.
Ostrom, V. (1973). Can federalism make a difference? Publius, 3(2), 197–237.
Ostrom, V., & Ostrom, E. (1971). Public choice: A different approach to the study of public administration. Public Administration Review, 31(2), 203–216.
Ostrom, V., & Ostrom, E. (1991). Public goods and public choices: The emergence of public economies and industry structures. In V. Ostrom (Ed.), The meaning of American federalism (pp. 163–197). San Francisco, California: ICS Press.
Ostrom, V., Tiebout, C. M., & Warren, R. (1961). The Organization of Government in metropolitan areas: A theoretical inquiry. American Political Science Review, 55(4), 831–842.
Pate, J. E. (1938). Trends in County Government. Social Forces, 16 (3), 418–426.
Personnel Notes. 1936. Southern Economic Journal, 2(3), 95–100.
Pierce, D. (2010). Good Roads Movement, The Tennessee Encyclopedia of History and Culture, http://tennesseeencyclopedia.net/entry.php?rec=554
Pigou, A. C. (1960 ). A study in public finance, London, New York: Macmillan and Co, third edition.
Prendergast, W. B. (1953). Other activities. American Political Science Review, 47(1), 279–283.
Preston, H. L. (1991). Dirt roads to Dixie: Accessibility and modernization in the south, 1885–1935. Knoxville: University of Tennessee Press.
Satterfield, M. H. (1940). Tennessee counties stand pat. National Civic Review, 29(1), 26–29.
Satterfield, M. H. (1948). Trends in rural local government in the south. Journal of Politics, 10(3), 510–535.
Sidgwick, H. (1902). Lecture on the ethics of T. H. Geeen, Mr. Herbert Spencer, and J. Martineau, London, New York: Macmillan and Co.
Sims, C. C. (1932). County Government in Tennessee, Dissertation, University of Chicago.
Sims, C. C. ed.. (1947). A history of Rutherford County, Murfreesboro, TN.
Snider, C. F. (1937). County and township government in 1935-36. American Political Science Review, 31(5), 884–913.
Tarko, V. (2017). Elinor Ostrom: An intellectual biography. London: Rowman & Littlefield International.
Tullock, G. (1969). Federalism and problems of scale. Public Choice, 6(1), 19–29.
Wager, P. W. (1933). Reform in county government. Bulletin of the American Library Association, 27(8), 333–335.
Wager, Paul W. 1939. Tennessee provides for county consolidation. National Municipal Review, 28(4), 312–317.
Wager, P. W. (1940). State centralization in the south. The Annals of the American Academy of Political and Social Science, 207, Intergovernmental Relations in the United States, 144–150.
Wagner, R. E. (2017). James M. Buchanan and Liberal Political Economy: A Rational Reconstruction. Cheltenham, UK: Edward Elgar.
Weingroff, R. F. (2017). Creation of a Landmark: The Federal Aid Road Act of 1916, https://www.fhwa.dot.gov/highwayhistory/landmark.pdf.
White, C. P. (1924). The trend in Federal Expenditures. Annals of the American Academy of Political and Social Science, 113(May): Competency and Economy in Public Expenditures), 1–8.
White, C. P. (1927a). Review of outlines of public finance by Merlin H. Hunter. Annals of the American Academy of Political and Social Science, 129(Jan.), 157–158.
White, C. P. (1927b). Review of income tax procedure, 1927 by Robert H. Montgomery. The Annals of the American Academy of Political and Social Science, 132(Jul.), 204.
White, C. P. (1928). Review of the effect of the 80 per cent credit clause of the Federal Estate tax law on state inheritance tax Laws. Journal of Political Economy, 36(5), 625–633.
White, C. P. (1931a). Problems of taxation in Tennessee, Annals of the American Academy of Political and Social Science. The Coming of Industry to the South, 153(Jan.), 238–245.
White, C. P. (1931b). Review of state and local taxation of property. The Annals of the American Academy of Political and Social Science, 155(May), 254.
White, C. P. (1931c). Review of Federal Financing by Robert A. Love. Annals of the American Academy of Political and Social Science, 156(Jul.), 170–171.
White, C. P. (1934a). Review of the theory and practice of modern taxation by William Raymond Gree. The Annals of the American Academy of Political and Social Science, 173(May), 215–216.
White, C. P. (1934b). Review of taxation of foreign and National Enterprises by league of nations. The Annals of the American Academy of Political and Social Science, 176(Nov.), 235–236.
Parts of the paper was presented at a seminar at the Department of Economics of the University of Torino. I thank the participants, in particular Giandomenica Becchio and Enrico Colombatto for their comments. My thanks also go to Rosolino Candela, Andrew Farrant and two anonymous reviewers for helpful comments and suggestions.
About this article
Cite this article
Marciano, A. Buchanan and public finance: The tennessee years. Rev Austrian Econ 32, 21–46 (2019). https://doi.org/10.1007/s11138-018-0419-2
- Public finance