Skip to main content

Teaching economics, defending the free market and justifying government intervention: The ABCs of Buchanan’s political economy


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.

This is a preview of subscription content, access via your institution.


  1. 1.

    Buchanan to Hamilton, 29 October 1951, BP.

  2. 2.

    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.

  3. 3.

    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)).

  4. 4.

    John E. Ivey to R. C. Weem, October 1, 1953, BP.

  5. 5.

    Buchanan, “Highway Economics Conference. Notes for Working Committee,” Draft, 14 January 1954, BP.

  6. 6.

    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).

  7. 7.

    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).

  8. 8.

    It also differed from the kind of planning that was defended by “libertarian socialists” such as Oskar Lange (1936, 1937), Abba Lerner (1934, 1937) or H. D. Dickinson (1939).

  9. 9.

    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).

  10. 10.

    “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).

  11. 11.

    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).

  12. 12.

    “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 (, 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).

  13. 13.

    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.


  1. Allen, C. L., Buchanan, J. M., & Colberg, M. R. (1954). Prices, income, and public policy: The ABC’s of economics. McGraw-Hill.

    Google Scholar 

  2. Bator, F. M. (1958). The anatomy of market failure. Quarterly Journal of Economics, 72(3), 351–379.

    Article  Google Scholar 

  3. Boettke, P. J. (2011). Teaching economics, appreciating spontaneous order, and economicsas a public science. Journal of Economic Behavior & Organization, 80, 265–274.

    Article  Google Scholar 

  4. Boettke, P. J., & Candela, R. (2017). Price theory as prophylactic against popular fallacies. Journal of Institutional Economics, 13(3), 725–752.

    Article  Google Scholar 

  5. Buchanan, J. M. (1947). A theory of financial balance in a federal state. Mimeo, BP.

    Google Scholar 

  6. Buchanan, J. M. (1948). Fiscal equity in a federal state. Ph.D. dissertation. University of Chicago.

    Google Scholar 

  7. Buchanan, J. M. (1949a). The pure theory of government finance: A suggested framework (p. 42). Mimeo, BP.

    Google Scholar 

  8. Buchanan, J. M. (1949b). The pure theory of government finance: A suggested approach. Journal of Political Economy, 57(6), 496–505.

    Article  Google Scholar 

  9. Buchanan, J. M. (1950). Federalism and fiscal equity. American Economic Review, 40(4), 583–599.

    Google Scholar 

  10. Buchanan, J. M. (1952a). The pricing of highway services. National Tax Journal, 5(2), 97–106.

    Article  Google Scholar 

  11. Buchanan, J. M. (1952b). Federal grants and resource allocation. Journal of Political Economy, 60(3), 208–217.

    Article  Google Scholar 

  12. Buchanan, J. M. (1953). The “politics” of economic policy. BP.

  13. Buchanan, J. M. (1954a). Social Choice, democracy, and free markets. Journal of Political Economy, 62(2), 114–123.

    Article  Google Scholar 

  14. Buchanan, J. M. (1954b). Individual choice in voting and the market. Journal of Political Economy, 62(4), 334–343.

    Article  Google Scholar 

  15. Buchanan, J.M. (1955). Traffic, Tolls and Taxes: The Economics of the Nation’s Highway Problem, BP.

  16. Buchanan, J. M. (1956). Working paper for internal discussion only. From University of Virginia Special Collection.

    Google Scholar 

  17. Buchanan, J. M. (1957). Review of Economic Commentaries by Sir Dennis Robertson. Southern Economic Journal, 23(4), 453–454.

    Article  Google Scholar 

  18. Buchanan, J. M. (2007). Economics from the outside in: “Better than plowing” and beyond. Texas A&M University Press.

    Google Scholar 

  19. Dickinson, H. D. (1939). The economics of socialism. Oxford University Press.

    Google Scholar 

  20. Giraud, Y. (2018). Textbooks in the history of recent economics: The case of Samuelson’s economics. History of Political Economy, 50(3), 579–585.

    Article  Google Scholar 

  21. Hamby, A. L. (1972). The vital center, the Fair Deal, and the quest for a liberal political economy. American Historical Review, 77(3), 653–678.

    Article  Google Scholar 

  22. Hansen, A. H. (1947). Economic policy and full employment. McGraw-Hill.

    Google Scholar 

  23. Harris, S. E. (Ed.). (1948). Saving American capitalism. A liberal economic program. Alfred A. Knopf.

    Google Scholar 

  24. Knight, F. H. (1932). The newer economics and the control of economic activity. Journal of Political Economy, 40(4), 433–476.

    Article  Google Scholar 

  25. Knight, F. H. (1941). The meaning of democracy: Its politico-economic structure and ideals. Journal of Negro Education, 10(3), 318–332.

    Article  Google Scholar 

  26. Knight, F. H. (1951). The rȏle of principles in economics and politics. American Economic Review, 41(1), 1–29.

    Google Scholar 

  27. Lange, O. (1936). On the economic theory of socialism: Part one. The Review of Economic Studies, 4(1), 53–71.

    Article  Google Scholar 

  28. Lange, O. (1937). On the economic theory of socialism: Part two. The Review of Economic Studies, 4(2), 123–142.

    Article  Google Scholar 

  29. Lerner, A. P. (1934). Economic Theory and Socialist Economy. The Review of Economic Studies, 2(1), 51–61.

    Article  Google Scholar 

  30. Lerner, A. P. (1937). Statics and dynamics in socialist economics. The Economic Journal, 47(186), 253–270.

    Article  Google Scholar 

  31. Lewis, B. W., McCutchen, S. P., Nourse, E. G., & Allen, C. L. (1954). Round table on economics in general education. American Economic Review, 44(2), 683–685.

    Google Scholar 

  32. Marciano, A. (2013). Buchanan on market imperfections, voluntary cooperation, and externalities. History of Political Economy, 45(2), 223–254.

    Article  Google Scholar 

  33. Marciano, A. (2020a). The origins of Buchanan’s views on federalism, Chicago 1946–1947. Journal of Institutional Economics, 16(3), 319–335.

    Article  Google Scholar 

  34. Marciano, A. (2020b). How Buchanan’s concern for the South shaped his first academic works. Public Choice, 183(3–4), 247–271.

    Article  Google Scholar 

  35. Marciano, A. (2020c). How Wicksell became important for Buchanan: A historical account of a (relatively) slow epiphany. Journal of Public Finance and Public Choice, 35(2), 181–203.

    Article  Google Scholar 

  36. Marciano, A., & Medema, S. G. (2015). Market failure in context: Introduction. History of Political Economy, 47(6), 1–19.

    Article  Google Scholar 

  37. Medema, S. G. (2020). ‘Exceptional and unimportant’? Externalities, competitive equilibrium, and the myth of a Pigovian tradition. History of Political Economy, 52(February), 135–170.

    Google Scholar 

  38. McCracken, H. L. (1955). Review of prices, income, and public policy–the ABC’s of economics by Clark Lee Allen, James M. Buchanan and Marshall R. Colberg. Southern Economic Journal, 21(3), 350–352.

    Article  Google Scholar 

  39. Peck, J. (1950). Free system endangered, club warned. The Knoxville Journal, March 3.

  40. Samuelson, P. A. (1948). Economics. An introductory analysis. McGraw Hill.

    Google Scholar 

  41. Simons, H. (1948). Economic policy for a free society. University of Chicago Press.

    Google Scholar 

  42. Simons, H. (1983). Simons’ syllabus. Center for Study of Public Choice.

    Google Scholar 

  43. Taylor, H., O’Leary, P.M., Phalan, J.L., Spengler, J. J., Stewart, W. B., Wolfe A.B. (1950). On Teaching Undergraduate Economics, in The Teaching of Undergraduate Economics, (ed), H. Taylor, American Economic Review, 40(5), Part 2: Supplement, i+iii-xiii+1–226.

  44. Waldo, D. (1948). The administrative state: A study of the political theory of American public administration. Ronald Press Company.

    Google Scholar 

Download references


Special thanks to Rosolino Candela for his help, comments and suggestions in the preparation of this essay.

Author information



Corresponding author

Correspondence to Alain Marciano.

Additional information

Publisher's note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

References to “BP” refer to the following: Buchanan Papers: James M. Buchanan papers, C0246, Special Collections Research Center, George Mason University Libraries.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Marciano, A. Teaching economics, defending the free market and justifying government intervention: The ABCs of Buchanan’s political economy. Rev Austrian Econ (2021).

Download citation


  • James Buchanan
  • Price theory
  • Political economy
  • Free market
  • Market failures
  • Process
  • Ethics
  • Government intervention

JEL classification

  • A22
  • B21
  • B22
  • B25
  • B31
  • B53