Public Finance in Democratic Process is James M. Buchanan’s monumental work that outlines the dynamics of individual choice as it is displayed in the process of public finance.
Buchanan is perhaps nowhere more clearly a disciple of the great Swedish economist Knut Wicksell than he is in the underlying principles of this seminal work. Specifically, he elaborates on these three central Wicksellian themes:
1.Analysis of market failure in the provision of public goods.
2.The insistence on conceiving policy decisions as the outcome of political processes.
3.The necessity of treating the tax and expense sides of the budget as interconnected.
Echoing Wicksell’s antipathy to the “benevolent despot” model of government, Buchanan lays out in this book a starting point for modern public-choice analysis. Recognizing the pathbreaking work he is about to begin, Buchanan opens his preface by stating, “Fiscal theory is normally discussed in a frame of reference wholly different from that adopted in this book. This dramatic shift of emphasis . . . . requires that I consider the processes through which individual choices are transmitted, combined, and transformed into collective outcomes. Careful research in this area is in its infancy, and the necessary reliance on crude, unsophisticated models underscores the exploratory nature of the work.”
According to Geoffrey Brennan in the foreword, “Public Finance in Democratic Process is a work more hospitable to public finance orthodoxy and could be treated as an extension (albeit an important one) of the conventional approach.”
“To the individual taxes are the “prices,” the “costs,” of the goods and services that the government supplies for his benefit. This conception of the fiscal structure is central to this study, and our procedure has compared the individual’;s behavior in fiscal choice with that in market or private choice. In the market, the individual selects a preferred quantity at a given price per unit, or, alternatively, he allocates a specific outlay to the purchase of a specific good, which, at the given price, results in a determinate quantity being taken. The selection of a preferred physical quantity automatically determines total outlay, or, conversely, the selection of an amount to be spent automatically determines the physical quantity. In either case, the purchaser is assumed to make only one decision. It is absurd to think of his making two separate decisions, one as to the physical quantity of the good to be purchased and the other as to the total outlay to be made. Given the availability of a good or service at an invariant market price, these two decisions reduce to one and the same.”
James M. Buchanan
In 1986 James M. Buchanan (1919-2012) was awarded the Alfred Nobel Memorial Prize in Economic Sciences. Universally respected as one of the founders of the “public choice” school of economics, he is the author of numerous books and hundreds of articles in the areas of public finance, public choice, constitutional economics and economic philosophy. He is best known for such works as The Calculus of Consent, The Limits of Liberty, The Power to Tax, and The Reason of Rules. Buchanan has devoted himself to the study of the contractual and constitutional basis for the theory of economic and political decision making.
See also at Econlib: the Concise Encyclopedia of Economics entry on Buchanan