The purpose of this article is to show that Prices, Income and Public Policy (1954), an introductory textbook in economics written by William Allen, James Buchanan and Marshall Colberg, was actually a treatise in political economy. The book indeed tapped to the political economy of Henry Simons and Frank Knight, and anticipated Virginia Political Economy. This form of political economy has three dimensions that we discuss in this article. First, teaching principle of economics. Second, defending the virtues of a free-market economy. Thirdly, insisting on the importance of government intervention in such a system. Their point Allen, Buchanan and Colberg made was that a free market is flawed, just as government intervention. By contrast with those who were suggesting to invent a new form of capitalism to deal with the evils of capitalism, they claimed that one should try to make this system work by understanding its nature.
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Buchanan to Hamilton, 29 October 1951, BP.
Reviewing and putting the book in a broader context is all the more interesting, given that Prices, Income and Public Policy has not been reprinted in the 20 volumes of James Buchanan's collected works that were published by Liberty Fund.
The president of FSU, Doak S. Campbell, authorized Buchanan to split his time between the University and the Board that took care of the organization of the conference, as evidenced by the letter Ivey wrote in January 1954: “Professor Buchanan has made a substantial contribution to the present thinking about and possible future progress in research and education activities between university social science units and state highway commissions in the fourteen southern states…I just wanted to take this occasion to report to you our appreciation for having been allowed to share part of Professor Buchanan’s time with the University,” Ivey to Campbell, January 28, 1954, Buchanan Papers, Special Collection, GMU Library (BP). Buchanan was even hired as a part-time consultant to SREB during the summer of 1953 (SEJ 1954, 20(3)).
John E. Ivey to R. C. Weem, October 1, 1953, BP.
Buchanan, “Highway Economics Conference. Notes for Working Committee,” Draft, 14 January 1954, BP.
In the early 1930s, Knight “confess[ed] … a prejudice. It is the ‘wish’ that somewhere in the program of university education in economics there might be an emphasis on the first type of end listed, i.e., on fact, truth, and understanding.” (Knight 1932, p. 442).
This was how the book was perceived. Thus, Harlan McCracken wrote, in the one review of the book that was published, that it aimed at showing “how the basic economic forces of demand, supply, and price are designed to operate in a free enterprise society.” (1955, 352).
Harris suggested to borrow from the Russians “an approach to fair distribution, full use of resources and the mobilization of incentives for workers” (1948, p. 158) with which he would mix America's “political and other freedoms, the maximum scope of freedom of choice by consumers, investors and work” (1948, p. 158).
“In Britain, the owners of industries that are to be nationalized are given compensation. Anyone who opposes the Labor party’s government—and most English newspapers do—is free to express his opinion and organize politically. Even communists are granted full civil rights and liberties as of 1948” (1948, p. 589). For his part, Hansen believed that this was the case in a lot of countries: “In the United States, Canada, Great Britain, Australia, New Zealand, the Scandinavian countries, Holland, Belgium, and France—that part of the western world that comprises the bulk of world trade—private enterprise produces the overwhelming part of goods and services. Yet the state is playing an increasing role. In none of these countries is the system simon-pure private capitalism; nor is it thoroughgoing socialism. It is a "mixed" system, in varying degree.” (1947, p. 41).
Buchanan wrote that the student of fiscal problems “must either accept the tenets of those economists who consider that the economic problem could best be solved by a competitive free enterprise system operating within the limits of defined ‘rules of the game’ laid down and enforced by the political unit, or he must accept the doctrines of the opposing school asserting that a freely competitive system is not the ultimate means and that Instead greater political direction of economic life is required for the optimum solution of the economic problem.” (1948, pp. 6–7).
“It is conceivable that a completely socialist state, in which all or most economic decisions would be centrally made, could prove as ‘efficient’ in practice as the free-enterprise system. (We do not think this would be the case, but let us assume that it might be.) The case of a private-enterprise system would still be strong. The socialist state or other type of centrally planned economy (e.eg., the fascist states of Hitler and Mussolini) secures such efficiency as it achieves only at the cost of freedom of the individual.” (1954, p. 373).
One can hardly resist to the temptation to quote Simons and Knight. The former wrote “The great enemy of democracy is monopoly, in all its forms: gigantic corporations, trade associations and other agencies for price con- trol, trade-unions—or, in general, organization and concentration of power within functional classes.” (Simons, 1948, p. 43; italics in original). And the latter claimed hat “[t]he importance of monopoly as an evil is enormously exaggerated in the popular mind-and the most serious monopolies are those created or fostered by the government itself.” (1941, p. 331) Even if it is impossible to see here explicit references, the proximity is undeniable.
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Special thanks to Rosolino Candela for his help, comments and suggestions in the preparation of this essay.
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References to “BP” refer to the following: Buchanan Papers: James M. Buchanan papers, C0246, Special Collections Research Center, George Mason University Libraries.
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Marciano, A. Teaching economics, defending the free market and justifying government intervention: The ABCs of Buchanan’s political economy. Rev Austrian Econ 36, 441–460 (2023). https://doi.org/10.1007/s11138-021-00550-z
- James Buchanan
- Price theory
- Political economy
- Free market
- Market failures
- Government intervention