James M. Buchanan, Chicago and Post-War Public Finance

Abstract

This paper examines James Buchanan’s earliest writings within the context of post-WWII public finance theory and his education at Chicago. Public choice scholars have long recognized their ties to Chicago, but few have examined Chicago’s role serving as the primordial soup for Buchanan’s later work in public choice. Thus, we know very little about the sub-discipline of public finance at Chicago and its institutional and intellectual traditions in the immediate post war period. As the influence of Knight, price theory, and catallactics on Buchanan have been well explored, the focus here is on Buchanan’s graduate training in public finance, the departmental emphasis on product differentiation of ideas, and the general acceptance in ‘Old Chicago School’ economics of the importance of institutions and institutional design. I find that while maintaining a high degree of intellectual affinity with Chicago economics generally, Buchanan broke decisively with orthodox public finance (including that taught at Chicago) on several substantive issues early in his career, including the importance of expenditure theory and the relevance of the benefit principle and voluntary exchange.

Keywords: James Buchanan, Public Finance, Public Choice, Chicago, Frank Knight, Henry Simons

JEL Classification: B15, B25