Don Boudreaux on Buchanan
Jan 11 2021

buchanan-300x300.jpg Economist and author Don Boudreaux of George Mason University discusses the life and work of the economist James Buchanan with EconTalk host Russ Roberts. Buchanan received the Nobel Prize in 1986 for his work creating and developing public choice--the field which applies the tools of economics to politicians and political behavior. After discussing the importance of public choice, Boudreaux and Roberts focus on two contrarian articles of Buchanan's where he argues for the importance of markets and life as processes rather than problems to be solved analytically.

Agnes Callard on Aspiration
Where do our deepest personal values come from? Can we choose those values? Philosopher and author Agnes Callard of the University of Chicago talks about her book, Aspiration, with EconTalk host Russ Roberts. Callard explores the challenge of aspiration--who we...
Robert Frank on Success and Luck
Is your success in life your own doing? Robert Frank of Cornell University talks with EconTalk host Russ Roberts about his latest book, Success and Luck. Frank argues that we underestimate the role that luck plays in our success and...
Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Jonas Lenz Koblin
Jan 11 2021 at 10:32am

Where can we vote for our favorite episode from 2020. Can’t find the link. 🧐

[It’s right at the top of the page. In big print with a yellow background. I’m sure you can find it if you look. But in case you are unable to look at the top of the page, the link is –Econlib Ed.]

Alan Goldhammer
Jan 11 2021 at 11:38am

Were the votes last week by a large number of Republican House members and a smaller number of Senators to overturn legally cast votes in Arizona and Pennsylvania consistent with Public Choice Theory?

Jan 11 2021 at 8:26pm

When the talked turn to the narrow nature of utility maximization, and specifically about the Solzhenitsyn reference regarding ignoring incentives,  I thought about ‘Notes from the Underground’ which I see as the other extreme example.

Dostoyevsky writes that if we are given everything we could desire from a Max U perspective,  we would work to destroy it just to prove we have agency.

I think both examples illuminate the fundamental flaw in economics as a science.  I love the discipline for highlighting incentives and trade-offs, but it should be left to understanding the world we inhabit, not engineering an ideal one.  I am not sure where that leaves us though.

Great work as always Russ.  Thank you for the continued effort.  I very much look forward to the show each week.

Russ Roberts
Jan 12 2021 at 6:44pm

Here is the Dostoevsky quote. It is from Notes from the Underground:

Shower upon him every earthly blessing, drown him in a sea of happiness, so that nothing but bubbles of bliss can be seen on the surface; give him economic prosperity, such that he should have nothing else to do but sleep, eat cakes and busy himself with the continuation of his species, and even then out of sheer ingratitude, sheer spite, man would play you some nasty trick. He would even risk his cakes and would deliberately desire the most fatal rubbish, the most uneconomical absurdity, simply to introduce into all this positive good sense his fatal fantastic element. It is just his fantastic dreams, his vulgar folly that he will desire to retain, simply in order to prove to himself–as though that were so necessary– that men still are men and not the keys of a piano, which the laws of nature threaten to control so completely that soon one will be able to desire nothing but by the calendar. And that is not all: even if man really were nothing but a piano-key, even if this were proved to him by natural science and mathematics, even then he would not become reasonable, but would purposely do something perverse out of simple ingratitude, simply to gain his point. And if he does not find means he will contrive destruction and chaos, will contrive sufferings of all sorts, only to gain his point! He will launch a curse upon the world, and as only man can curse (it is his privilege, the primary distinction between him and other animals), may be by his curse alone he will attain his object–that is, convince himself that he is a man and not a piano-key! If you say that all this, too, can be calculated and tabulated–chaos and darkness and curses, so that the mere possibility of calculating it all beforehand would stop it all, and reason would reassert itself, then man would purposely go mad in order to be rid of reason and gain his point! I believe in it, I answer for it, for the whole work of man really seems to consist in nothing but proving to himself every minute that he is a man and not a piano-key! It may be at the cost of his skin, it may be by cannibalism! And this being so, can one help being tempted to rejoice that it has not yet come off, and that desire still depends on something we don’t know?

Jan 13 2021 at 8:21pm

When I heard you discuss returning the wallet or saving the child disincentivizing being careful with your property or your children, it made me think of a quote I heard on your podcast.

I believe you said it was Adam Smith, and it was something to the effect of “no man wants to live solely by the charity of others,” something like that.  Wouldn’t that instinct drive people to be careful with their stuff/children, even if every time they are misplaced they are returned or saved?

Additionally, if every lost wallet is an opportunity for the transformation of an individual into someone who enjoys doing good things (as you discussed,) could the argument be made that lost wallets actually improve the moral fabric of the society, or at least that this benefit could mitigate the negative of people becoming more careless?

Thanks for another great episode!


Bill Conerly
Jan 14 2021 at 1:31am

Nice episode.

Reminds me of Jefferson’s “life, liberty and pursuit of happiness.” As a kid I thought pursuit of happiness was parties and the beach. But I think it means we each craft our own life. We may pursue God or golf, but pursuit of happiness is inherently unique to each person.

David Zetland
Jan 14 2021 at 5:10am

Excellent discussion! I will recommend this to any and all students who have been (mis)led to believe that economics is only about homo economicus (although, sadly, it’s often taught that way!)

@Russ — I really enjoyed your “rant” towards the end of this episode, as well as your side note on Don’s numerical memory. Very fun.

Now to a quibble about the “dark side” of choice and flourishing. I am sure that both of you know that Buchanan was (actively/passively) supportive of school choice and privatisation , which — in the South — was used for discrimination. Julian Simon, likewise, was an advocate of human genius but also associated with a (myopic) branch of laissez faire / free market environmentalism that has been eagerly adopted by optimists, car enthusiasts and oil lobbyists. In both cases, individual choice or flourishing needs to be compared and contrasted with collective outcomes that often favor the rich and harm the poor.

I am now writing a book on this topic (The Little Book of the Commons), so these topics are on my mind just now 😉


Jan 14 2021 at 8:51am


I know you called it a quibble, but I have to say it seems more like a potshot.  Any tool, even your hands can be used for a deadly and dangerous purpose.  Minimum wage was devised as a specifically racist policy, but I don’t throw it out based on that historical fact (I throw it out because of the law of supply and demand).  Likewise, school choice may have some roots in racism, although I would point you to private school vouchers used in southern Vermont long before the end of slavery (See ‘School Vouchers, Segregation, and Consumer Sovereignty’ by Magness and Surprenant). If you think a program is not effective then fight it on the merits.  You hint at Buchanan as a racist based on his support of choice, and I think that is unfair.


I can’t say that I have read Simon’s work so  I don’t know the specifics other than it is a refutation of the Malthusian paradigm.  I would just say that many environmental policies that I see seem to favor those that are able to influence politicians and are not enacted for their efficacy in actual environmental outcomes, e.g. GM and the catalytic converter, or ethanol requirements in gas.  My point being that the collective outcomes that I see enacted through the machinations of government tend to favor the rich and harm the poor.

I think property rights and litigation can do a lot more good for the environment than those that favor a heavy handed government realize, but that is my unicorn.


John Alcorn
Jan 16 2021 at 4:31pm

A cornucopia of insights about the nature and scope of economics! Your admiration for James Buchanan is palpable. Much food for thought.

Two observations:

1) Re: Motivations of government actors. It would be a blessing if self-interest were the whole story; or if politics were mainly “a circus” to behold. Alas, negative motivations — envy, hatred, anger, pridefulness — often take center stage and wreak havoc. To cite a most extreme example of the mix of motivations: If no Hitler, then no Eichmann.

2) Re: The market. Russ Roberts paints an uplifting tableau:

“the reason trade is important is because it expands your opportunities to express your gifts, your dreams, your skills, and choose where you want to be in this great, vast network of human interaction we call the marketplace, which is again not about the farmer’s market or the stock market. It’s about this enormous web that no one weaves, that no one controls, where we choose our place; and we can fit in over here and over there and we can step back in other places.” (cue time approx. 1:10:00)

Compare Robert Sugden, another economist inspired by James Buchanan. Sugden unflinchingly identifies a tragic flaw in market society:

“In a market, each person’s opportunities are opportunities to transact with willing others. Each individual is free to choose from his own opportunity set, but the contents of that set are largely determined by the choices that other individuals make from theirs. In a developed market economy, most people’s most valuable opportunities consist of the terms on which other people are willing to transact with them. It is an unavoidable consequence of this fact that everyone can have a wide range of opportunities only if everyone’s opportunity set is liable to expand or contract as a result of other people’s decisions about how to use their opportunities. In this sense, unfairness is intrinsic to markets.”–The Community of Advantage (Oxford U. Press, 2018), p. 192.

A contractarian (e.g., James Buchanan) must justify the market also to those who find themselves bereft — perhaps through automation, globalization — in the vast matching game.

John Alcorn
Jan 16 2021 at 5:41pm

Re: “Man wants liberty to become the man he wants to become.” (James Buchanan)

John Stuart Mill expressed this idea in his essay, On Liberty (1859) — and emphasizes also the faculty of judgment:

“He who lets the world, or his own portion of it, choose his plan of life for him, has no need of any other faculty than the ape-like one of imitation. He who chooses his plan for himself, employs all his faculties. He must use observation to see, reasoning and judgment to foresee, activity to gather materials for decision, discrimination to decide, and when he has decided, firmness and self-control to hold to his deliberate decision. And these qualities he requires and exercises exactly in proportion as the part of his conduct which he determines according to his own judgment and feelings is a large one. It is possible that he might be guided in some good path, and kept out of harm’s way, without any of these things. But what will be his comparative worth as a human being? It really is of importance, not only what men do, but also what manner of men they are that do it. Among the works of man, which human life is rightly employed in perfecting and beautifying, the first in importance surely is man himself.”–Chapter 3, “Of Individuality, as One of the Elements of Well-being”

We stand on the shoulders of giants.

Jan 17 2021 at 3:46pm

“And so, Buchanan’s case for freedom, his case for freedom in this instance is: Give people maximum possible scope, so that individuals can choose to become different individuals. It’s not just about maximizing utility.”

I found this summary, given by Don Boudreaux around minute 52, helpful. It kind of brought home why Don and Russ thought Natural and Artifactual Man worth discussing.  It sounds like Buchanan was trying to create an argument for individual freedom that did not require an understanding or acceptance of economics or “economic values” to function. That freedom in general broadens the scope of individuals’ ability to shape themselves into better human beings is novel—at least to me—and sounds very much like philosophy. Russ has been exploring a lot of philosophy in the last six months, and I’ve enjoyed the areas where philosophy and economics overlap.

Buchanan’s argument, if I understand it correctly, hinges on the assumption that greater individual freedom allows the greatest chance for people to become better people, or at least closer to the people they want to become. That’s a big assumption. I’ve been trying to design a proof for that argument and I’m coming up short, which may be why it seems philosophical and not economic. I can create a mathematical proof that shows individuals with private property rights who specialize and trade are all better off than individuals without private property rights or individuals who do not trade. But I don’t think I can show that individual freedom will allow people to become better people than people under a systematic coercive regime. I wish I could. I would absolutely love to have some means of communicating the importance of individual freedom to people who consider wealth as evidence of evil and disagreement with their consensus group as foolish and dangerous. Trying to talk economics with people who have philosophical problems with the metrics economic models use in their proofs is a non-starter, at least in my experience.

Jan 26 2021 at 10:58pm

The saying “forests precede mankind;deserts follow” seems to be anonymous.  Could it be that the marketplace is at the center, “forest precede the marketplace; deserts follow”.  At least many former civilizations have underestimated the overhead costs of the market and ended badly.  Truck and barter, at scale, have unappreciated consequences despite the immediate benefits to the participants.  As individuals we need about the energy of a light bulb, 100 watts.  As participants in the American marketplace we each need 10,000 watts about the consumption of a large dinosaur. There is probably a happy medium and we are at one extreme.

Politicians are part of that overhead.  But only a part.  From a wide-angle view the average exchange is a net loss.  To suggest otherwise is to suggest a perpetual motion machine.  With complexity the loses are initially less obvious.  Prices (or well-being) are a blunt tool, we could measure each exchange in joules, watts, energy as does for cola cans and potato chips.

The scale in Adam Smith’s day was much smaller.

Comments are closed.


EconTalk Extra, conversation starters for this podcast episode:

Watch this podcast episode on YouTube:

This week's guest:

This week's focus:

Additional ideas and people mentioned in this podcast episode:

A few more readings and background resources:

A few more EconTalk podcast episodes:

* As an Amazon Associate, Econlib earns from qualifying purchases.

TimePodcast Episode Highlights

Intro. [Recording date: December 23, 2020.]

Russ Roberts: Today is December 23, 2020 and my guest is Don Boudreaux of George Mason University [GMU]. This is Don's 14th appearance on EconTalk. He was last here in June of 2017 when he was joined by Mike Munger and we talked about emergent order.

I want to encourage listeners to go to for our annual survey of your favorite episodes.

Don, welcome back to EconTalk.

Don Boudreaux: Always good to be here, Russ.


Russ Roberts: Our topic for today is the work of James Buchanan, in particular two of his essays. They are "What Should Economists Do?" and "Natural and Artifactual Man." They are both readable, accessible, mostly to a general reader, and available in the book The Logical Foundations of Constitutional Liberty, published by Liberty Fund, the sponsor of EconTalk. And, I've got the book right here for viewers to look at. Really exciting. Great visual, of course.

But, I wanted to start us off by having you give us an overview of Buchanan's work generally, and then we'll turn to the specific essays.

So, talk about your relationship with him, how long you knew him, and more generally what his economic philosophy and work was about.

Don Boudreaux: There are few scholars who have had a bigger impact on my own thinking than Buchanan.

He was--just biographical details quickly. He was born in 1919 on a farm near Murfreesboro, Tennessee. He died on January 9, 2013. And, in 1986 he won the Nobel Prize in Economics; and he was the only recipient of the Nobel Prize in Economics that year.

If you asked the typical economist, of course, they will say that James Buchanan is the founder or a co-founder of Public Choice economics. And he certainly was that. And, that played a major role in why the Swedish Central Bank decided to award him a Nobel Prize.

But, his work was much more than that. He was notorious--or famous, not notorious--famously, a workaholic. His Collected Works, as you mentioned collected by Liberty Fund, or allude to--through his first publications in 1949 through 2000, comprised 19 volumes, not counting an index. And, then he continued working almost until he died. He was publishing as recently as 2012.

So, he worked really hard.

He worked mostly in Public Finance--the intersection of private decision-making and political decision-making, collective decision-making. His Ph.D. is from the University of Chicago. He very famously regards the famous University of Chicago economist Frank Knight as one of his great teachers, although he didn't write his dissertation under Frank Knight. He wrote his dissertation under someone named Roy Blough. But he, Buchanan, regarded Knight as his great teacher. And, if you read Buchanan's work, references to Frank Knight, admiration for Frank Knight, comes through.

Buchanan finished his dissertation at Chicago in the late 1940s. His first teaching job was at the University of Tennessee. He was there for a few years. He spent five years, I think, on the economics faculty at Florida State.

And, then in 1956, he moved to the University of Virginia [UVA], where he was joined by his University of Chicago classmate--I'm not sure they were in the same cohort, but they were at the University of Chicago together--Warren Nutter.

In 1957, Buchanan and Nutter founded the Thomas Jefferson Center at the University of Virginia.

This is really the beginning of what Buchanan later came to call 'Virginia Political Economy.' This is Public Choice, and a unique approach to looking at collective decision-making through the lens of classical liberalism-- very much influenced by the Austrians, or very parallel with the Austrians.

Auspiciously, Warren Nutter was on the debate team at Chicago with a University of Chicago law student named Gordon Tullock, who only took one economics class in his life, and that was in the law school from Henry Simons. Through Warren Nutter, as I understand it, Buchanan brought Tullock to UVA as a post-doc in 1958.

And, of course, for the readers, for the listeners who know, Buchanan and Tullock wrote what is still the single most iconic book in public choice scholarship: The Calculus of Consent, which was published in 1962. Tullock and Buchanan continued their careers together. They stayed at Virginia through the lat 1960s. There was a breakup there because of upward administration problems. They separated for a year. 1969, they reunited together at Virginia Tech, then called VPI. They were at VPI through 1983 when, again, upward administration problems at that school caused them to leave again.

In 1982 the Center for Study of Public Choice moved to George Mason University. Buchanan and Tullock followed one year later in a move to George Mason University--from which they both retired. Buchanan retired from George Mason in 1999, I believe it was. Although he continued to be active, Russ. When you were here you saw Buchanan often on campus. He continued to be active really until the very end. Even though he was retired he would teach a seminar every spring for graduate students. I believe he did that through 2007, 2008. Gordon Tullock retired from GMU in 2008, and he died, like Buchanan, in his 90s, in 2014.

So, Buchanan, again--mostly, and rightly known chiefly for being the founder of Public Choice economics.

But, saying that really doesn't quite capture the full breadth of his contributions.

And, also one other thing I want to register here at the beginning. I remember when Buchanan got the Nobel Prize in 1986. It was my second year on the faculty at George Mason. It was very exciting: Buchanan gets the Nobel Prize.

And, the commentary in the press, at the time, was really quite annoying in many cases. A lot of people said, 'Well what's this guy getting a Nobel Prize for? All he's doing is pointing out that politicians are self-interested. Everybody knows that.'

Well, first of all, his contributions were far more than, 'Politicians are self-interested.' Yes, everybody knows that.


Russ Roberts: That is a possible one-sentence summary of what Public Choice is. Which you have not defined, by the way. So, for listeners who don't know what Public Choice is as a subfield or discipline within economics, it generally means applying the tools of economic thinking to political behavior and to politicians. So, carry on.

Don Boudreaux: Yeah. And so, it can be summarized as saying, 'Look. When we analyze political decision making, we're going to analyze it using the same assumptions about human motivation that we use when we analyze private market decision makings.' We're not going to assume that people are self-interested when they operate as consumers and businesses owners and managers and workers, and then assume that they become saints when they enter government. If we want to accurately compare the market to political outcomes, which is really one of the main things that economics is useful for, we want to compare apples to apples.

And so, we want to make this comparison useful by using the same assumptions about basic human motivations.

So, that's what public choice is. It sounds, in a way--when you say it that way it sounds trite.

But the fact is, when Buchanan began what later came to be known as Public Choice--the name Public Choice didn't come around until the 1970s, early 1970s. When Buchanan began this research program, it wasn't that trite.

Remember: Buchanan, he serves in the Navy under Chester Nimitz, and so he is in that generation of people where democracy is riding high. The Allies defeated, you know, the totalitarian Nazis; and suddenly starting in the late 1940s we in the West find ourselves at logger heads with this totalitarian monster in the East: of the democratic west versus the totalitarian, nondemocratic East--Russia and China.

So, democracy is riding high. And, Buchanan was a great fan of democracy, contrary to some beliefs. But, he said, 'Look. Let's understand it. Let's look at how it actually works.' Because, if we look at how it actually works, we'll better understand it. If we better understand it, then we can make sure that it works as best as is humanly possible, rather than just assuming that when people walk into the voting booth, it's all going to be blue birds and snowflakes and wonderful things.

So, Buchanan turned his incredibly deep analytical mind to studying the details of how democracy works.

So, that's Public Choice.

Buchanan wasn't the only person, by the way, as you know, in the mid-20th century to do this. Kenneth Arrow, George Stigler, other people did it.

Buchanan did it, however, in a unique way--again, along with Gordon Tullock. As I said earlier, Buchanan later came to call this Virginia Political Economy. While Virginia Political Economy shared a lot with the same broad kind of research that was taking place--at Harvard with Kenneth Arrow, later at Stanford, at Chicago with George Stigler, a little bit at UCLA [University of California at Los Angeles] with Sam Peltzman--there was a uniqueness about the Virginia approach, a uniqueness contributed mostly by Buchanan, and I think we'll get to that in the details of our discussion that are coming up.


Russ Roberts: Yeah. Just a couple reactions to that. First of all, I would guess that there is no Nobel Prize winner in economics who is an economist who is read as little by modern graduate students as James Buchanan. There might be a couple from the past, but in general, he's not on the syllabi, I think, of a modern graduate program.

Don Boudreaux: That's a good point. I agree.

Russ Roberts: Which is just a fact. You and I might wish it were otherwise, but I think it's true.

He's not a mathematician. His work can be generally read by human beings.

He has a deep philosophical interest to go alongside his economics interest that will come out today, I think, in our conversation.

And, I just want to say one thing about Public Choice, because of your remarks about it.

I remember having coffee with a journalist, a prominent journalist, who made some assumption about government. And, I said, 'Well, you know, actually economists think that politicians act generally in their own self-interest. Of course, they can have high motives alongside their self-interested ones, just like we all do as human beings. We're not merely self-interested, at least in the narrow sense of selfish.'

So, I just was making a point that economists actually take this richer view than often ones hears.

And, he was deeply offended by this. And, the reason he was offended was, you know, he said to me, 'Look, I'm a hard-nosed skeptical journalist. I don't take what politicians say as gospel about what they really mean or what they intend. Don't treat me like some naive person.'

But, he had already just said--I don't remember the exact quote--he had already implied that's actually the way he looks at it.

And, I think it's an example I would use--I just love this example--and he reads something in the newspaper that he happened to know something about. Let's say it's, my case it might be--in my case, it might be some poetry thing, or some literature thing, or Judaism, or something I know a little bit more probably than the average general journalist. Not a specialist; I'm not a specialist in any of those things. But I know a little bit about those things. It might be a technical issue, like, I don't know, chemistry.

You read about the way it's covered in the general press and you realize, 'Oh my gosh. There are all these errors and mistakes.' And, then you're just horrified that this thing that you know a lot about is butchered by the Press.

Then you turn the page and you read an article about something else, and you totally forget that it's no different than the chemistry article. It also is full of mistakes. But you just sort of--it's not your area so you just assume that the journalist is informing you.

And, this is not a criticism of journalists. It's hard to describe things accurately in general. A better way to say it, it's hard to describe things with nuance. I think a lot of times what specialists get offended by is that the journalist will ignore some issue of nuance or whatever.

But, I think the same thing happens with politics. It's sort of this view that, 'Oh yeah, well, most of them are crooks. Except for mine. Mine's wonderful. My representative, my senator, my president, my candidate,' whatever it is, 'That person has a good soul. Their heart is in the right place. Those other people are terrible.'

So, I think it's--what I think distinguishes a Public Choice perspective from a sort of cynical perspective that a journalist might have is that the economists in Public Choice are very aware of that issue. And, they're less likely to succumb to hero worship, ideological comfort from a candidate; and tend to view it in a more--see it more as a circus to be observed rather than something to cheer for like a football team.

I think the natural impulse we have toward tribalism that gets us to root for our ideological political partisan tribe is hard for people to remember. And, if you're in Public Choice, you think about it all the time. So, you tend not to be as prone to that kind of--what I would call the romanticization of politics or the political process. You're very aware it's a sausage factory; and you don't get fooled to thinking it's a rainbow factory.

Don Boudreaux: That's right. In fact, one of Buchanan's more famous essays, one of his least technical ones, is one he wrote in 1979 called "Politics Without Romance." And it was one of his attempts to summarize the essence of Public Choice. And, the title in those three words, nicely summarizes it. It's not: Politics is bad. It's not: Politicians are evil, as sometimes people mischaracterize Public Choice--

Russ Roberts: caricature--

Don Boudreaux: It's: Politics without romance. Let's look at it realistically rather than romantically. And, who could possibly dispute that?

Russ Roberts: Yeah. And, again, if you're not careful it then is seen as, 'Well that's trite. Everybody knows that.' And, by the way it's not much different than other Nobel Prizes: The one sentence variation. James Tobin's Nobel Prize is Don't Put All Your Eggs in One Basket, and people reacted to that going, 'They got a Nobel Prize for that? Everybody knows that.' Well, there's a little more to it. That's the Twitter version. But, you know, for what it's worth.


Russ Roberts: So, let's turn to the essays that we're going to talk about today, and I'm going to read occasionally from the essay. The first one, "What Should Economists Do?" And, I want to quote, he [Buchanan] says here:

Economists should concentrate their attention on a particular form of human activity and upon the various institutional arrangements that arise as a result of this form of activity. Man's behavior in the market relationship reflecting the propensity to truck and to barter, and the manifold variations and structure that this relationship can take, these are the proper subjects for the economist's study.

And, of course, the 'truck and barter' reference is alluding to Adam Smith--that we have 'a propensity to truck, barter and exchange.' And, I want to emphasize exchange. Truck is an old fashioned word to mean make a deal. To barter means to make a deal without cash. It means to trade a thing for another thing.

Exchange--well, truck and barter are forms of exchange, but we could think of other forms of exchange, and I'm just going to pick one because it's on my mind and I think it's so perfect, which is: A friend of mine got a present the other day, and she's trying to decide, 'What am I going to give back to them?' And, I was thinking, 'You just got a present. Why don't you just take it. Say thank you.' The thing to give back is, 'Thank you.'

But, in her mind--actually it's my mom, it's not my friend. I just--didn't want to--but this is so my mom. In her mind it's like, 'I've got to reciprocate.'

And, that human desire--in fact, by the time my mom's done, on a narrow utility calculus of an economist, she's going to be worse off in the sense that she will spend more time creating something for the other person than she got pleasure from their gift.

But, that totally misses the point. Right? So, that exchange--and just think of it as an example: Gift-giving is an example of exchange that is not truck, it's not barter, but it's a very important part of human interactions.

So, what Buchanan is saying, and it's a very subtle idea--on the surface it's not, but it's quite subtle. What he's saying is that: instead of thinking of economics as being about choice, and he mentions this explicitly. He says, 'The standard view of economics is: Infinite wants, finite resources, so now what? Well you've got to choose, and you want to choose to make yourself as well off as you can do,' and that's--you've got to deal with the fact that there's trade offs and maybe diminishing marginal utility. You won't get as much pleasure from the fifth item as the fourth once you've already had the four.

And so, he's saying, 'That's the standard view of economics. It's about choice and how to deal with the fact that I can't have everything I want. I've got to choose.' He says, 'That's the wrong focus. The focus should be on our interactions in the marketplace, very broadly defined to mean not just at the farmer's market and not just on the web when I buy something, but all the different ways that you and I might interact with--we all interact with each other, commercially and non-commercially.'

Don Boudreaux: Right. Yeah.

So, Buchanan--so, just let's date the piece. Buchanan, this was his 1963 address as outgoing President of the Southern Economic Association. It was published in the Southern Economic Journal in 1964.

And so, this is written and published at the height of what we economists call Welfare Economics, and the promise of Welfare Economics to, like, redo the world and make it so much better. And, Buchanan is pushing back against this.

So he, of course, doesn't deny that individuals have to make choices, and that making choices correctly, of course, is better than making choices randomly or incorrectly.

But, I think the best way to summarize the message of that piece is the following. There are many ways to do it, but I think this is a good one. The economy as a whole--whether you're talking about a country or humanity--is not the same thing as a person.

So, you, Russ Roberts, you face, at any moment, certain opportunities and constraints. You have limited income; you have preferences that are greater than your income will allow you to fully satisfy. So, you have to choose how to spend your income. You know: do you take this vacation instead of buying a new car, or vice versa? This is something we all face. Even Jeff Bezos is faced with unlimited wants or wants greater than his resources.

And, of course, at some level this is true for the economy as a whole. Right?

But, there's a big difference, Buchanan says. Unlike an individual, who has in his or her own mind, knowledge of that person's preferences and their opportunities, there is no mind for society as a whole. And, it's wrong, it's a mistake, to think that the United States, or Germany, or humanity, faces the same kind of decision-making structure that an individual faces. There was a[?]--go ahead?

Russ Roberts: Because there's no agency in the same way that I have. I have autonomy in some dimension over much of my life. Not all of it, obviously; but some of my life. The idea of transferring that same autonomous vision to a country, he's saying, is intellectually flawed.

Don Boudreaux: Yeah. And--because there are a variety of reasons why this analogy between a genuine individual and a collective fails.

But, a really important one is that unlike for an individual, a group of people has no unified set of preferences. You have your preferences. They may change. Of course, they do change. I have my preferences. But, you and I together, even though we're close friends, we don't have a single set of preferences. There is no one right allocation of how you and I should spend our incomes.

So, when we are engaged in exchange with each other, we're not together trying to satisfy some one set of preferences. We're not together trying to achieve some one set of goals. You're trying to achieve your goals. I'm trying to achieve mine.

Now it might be, in fact it typically is, through exchange you can better help me to achieve my goal because you have some comparative advantage that I don't. And, I can better help you achieve your goal.

But it's a fundamentally different set of actions. So, when you go to the store with money--you go to the supermarket and you have 20 bucks. You spend it in order to maximize your utility, as economists say. But, in a society, there has to be some way to reconcile all these different preferences.

And, exchange, interpersonal exchange, whether it be commercial, non-commercial--and as you pointed out rightly, Buchanan explicitly recognized that exchange takes place in many ways beyond the commercial--exchange is a way in which people with conflicting, sometimes conflicting but always not perfectly congruent preferences, meet up with each other and figure out ways how each person can better help the other achieve his or her own ends without--without--without us having to, as a society, determine what is the best allocation of resources.

Buchanan said there is no the best allocation of resources, despite the fact that economists often spoke in that way. It's a mental distraction to think that, just as you, Russ Roberts, have a best allocation of your income, that America has a best allocation of its income.

It is a very subtle point. But, Buchanan went from--he used that understanding that a collective is not an individual, to say, 'Look. What do people do?' Well, people exchange. They exchange in arms length commercial transactions. They exchange by joining clubs. They exchange by creating political organizations.

All of these are forms of exchange.

By the way, one reason why a lot of sort of more hardcore libertarians don't like Buchanan is because Buchanan always insisted on modeling politics as exchange. For Buchanan, it wasn't--politics wasn't just a pure power play. Now he recognized that in reality sometimes it was: and obviously Josef Stalin wasn't engaged in exchange. He was pure power play.

But, Buchanan held out the hope that, realistically, in this world--particularly the democratic world--that politics could be a positive-sum process of exchange. So, there are many different ways to exchange. And, so let's not worry about whether or not our exchanges are somehow leading to some mathematical optimum. Let's, as economists, look at what people do, understand their motivations, and try to understand how when Person A exchanges with Person B, how they both gain. How we might alter the institutional structure to allow A to exchange with not just B but also C and D, so that the possibilities for mutually advantageous exchange can take place.

Let me end my little monologue here by saying that Israel Kirzner wrote in the Southern Economic Journal a reply to Buchanan's article--very sympathetic reply. And, I think Kirzner's right, though. He said, 'Look Buchanan, in a way, overstates his case. It's not that choice doesn't matter at all and exchange is all that matters. When people are exchanging they're making choices, so let's not forget that.'

But, I take Kirzner's point, and I'm pretty sure Buchanan would've agreed with it. Kirzner said that Buchanan was saying what Austrian's say when Austrian economists say, 'The market is a process. It's a process. It's a process of exchange.' And so, let's look at the economy as this ongoing process, and let's not hold it to a standard of, 'Oh. Has it reached perfection?' It's never going to reach perfection. There are always opportunities, there are always mistakes, there are always errors, there are always flaws. And, then individuals notice these and they want to use their energies and creativity to try to make improvements.


Russ Roberts: So, I think the way you're talking about political process as Buchanan saw it, the way I think of that is that market outcomes and political outcomes are both examples of emergent order. The difference between them is that the feedback loops that are there that make that order work well are different. The gains and costs of different actions are different in market behavior than in political behavior. Political behavior--there is competition. It's constrained in very particular ways, and that depends on what kind of political system you have. And, in general, in market outcomes--what we call commercial markets--competition generally works very well to protect consumers and workers if there's a sufficient amount of it. There's less in political markets, and I think there's more opportunity for exploitation.

Don Boudreaux: Less competition.

Russ Roberts: Less competition. Yeah. Sorry. But, there are many cases of market outcomes where competition is either ineffective or the feedback loops aren't there. I can dump my garbage in your yard if we're living in a kind of non-government world, and I can use force, and I wouldn't want to then say, 'Oh: well, whatever happens must be great because emergent order is great.' It's not. Sometimes it leads to results we are not happy with in commercial life. Sometimes it leads to results we're not happy with in government life.

And, I think the power of Buchanan's approach, which is very hard for, I think, most economists to internalize, is to see them both as examples of a similar process, but with different institutional pieces to it. And, that is, I think he's suggesting, what we ought to be looking at.

Now, having heard what you just said, I want to disagree a little bit with what I think is the centerpiece of the article. It's true that he's railing against--and says so explicitly--utilitarianism as a way of assessing outcomes. And, in particular, exactly along the lines you said: That, in a utilitarian world, if I'm going to sum up all the happinesses and I don't have a metric to sum them across individuals, as you point out, since we're different--we don't have shared preferences--now what? And, economists grappled with this, and I'm writing a little bit about this in my next book. I don't know if it's going to make it into the final version.

But, the original thing was, 'Well, just count utility. Let's measure it somehow. We'll find a way.' And, we gave up on that, and we said, 'Okay. We can't do that. Let's use dollars. So, the amount you're willing to pay is a measure of the gains to you, or the amount you're willing to pay to avoid something, that's the measure of the cost. And, I'll just add those up.'

The problem is, of course, that the value of a dollar to me depends on how much income I have, and that biases the calculations both against and in favor rich people, depending on the nature of the calculation. We're not going to get into that now.

But, his insight, which I think is profound, is that you can't assess the optimality or attractiveness of social outcomes objectively. You can measure them, Don. I can say, 'I like that outcome.' You could say, 'I don't.' Or, 'I do like it, also.' But, to suggest that we can then get some global assessment is not possible. So that's the first thing here, that he says, that I think I agree with.

But, he makes, I think, another point, which I think is methodologically extremely interesting--and I don't know if it's going to be interesting to anybody else except you and me, Don. But his point is, is that, if we have the utility function, the thing that supposedly captures how I feel about certain outcomes, which I prefer to others. I have to choose between a vacation on the beach and a vacation in the mountains. Turns out I hate the beach. I love the mountains. So, when I have time for a vacation I choose the mountains. That would be an example of choice.

And, what Buchanan says in the article, which is so interesting, is that that reduces the human experience to an engineering problem. If we assume that people have these preferences, and they have to make choices because they have finite incomes to achieve those preferences and outcomes that they like, then it's just a math problem.

And, of course that's the way we teach it--in most graduate programs, and even undergraduate programs increasingly. 'It's a math problem. That's what economics is.' And, then when you ask people, 'Do people really solve equations?' 'Oh, no, no, no. Of course they don't. But, they act as if they do.'

And, what Buchanan--I see Buchanan as criticizing implicitly Friedman's--you'll tell me the year. 1953? Methodological article--

Don Boudreaux: 1953. Yeah--

Russ Roberts: where he says, 'Oh, of course they don't actually maximize anything. They don't sit around making calculations and trade-offs between marginal this and marginal that relative to the prices. But, they act as if they do.' Just like the truck driver on a rainy night taking a turn doesn't know the physics equations of friction, but through experience acts as if the truck driver is following those equations.

And, what I have come to believe is that that is a dangerous presumption. Because, after a while you forget that it's 'as if.' We had Paul Pfleiderer on the program talking about this. You can go back and listen to that episode, listeners. Fantastic episode.

I grew up in economics believing that Milton Friedman was right, and I've come to believe that he was very wrong--that, first of all, we don't just care about descriptiveness. In other words, if I want to know how a truck driver behaves on a rainy night taking a curve at 45 miles an hour, yeah, it's a pretty good working assumption to assume that they know the physics. That's a good working assumption if I want to figure out how much braking the truck driver's going to do.

But, that's not what we do in economics. We say, we assume people act as if they're maximizing something. Then we use their choices to assess the valuableness or the unpleasantness of policy decisions.

And, that just is a leap that doesn't follow. And I see Buchanan as saying that. He's saying, 'You can't treat human beings as robots or computers. You can--you're free to. But, don't make'--

Don Boudreaux: It isn't accurate--

Russ Roberts: 'but, if you're not careful'--first of all, it's inaccurate. It's not descriptive. It's descriptive of the outcomes. It's not descriptive of what actually happens. And therefore you've stripped out a huge portion of what makes economics insightful. It's not about engineering, which is increasingly what our profession has become. It's about these market transactions in the whole panoply of institutional arrangements and norms that come with that. So, what do you think of that?

Don Boudreaux: So, first, for a moment, to get back to the "What Should Economists Do?" article, Buchanan was warning, in his own way, against this engineering notion. He doesn't say so explicitly, but it's very clear to me that one of the things he's warning against is this notion that, 'Look, if we come to think of the society, the country, as being like this big giant person that has preferences, well then it's too natural to assume that, okay, the government will then take over'--

Russ Roberts: Embody it--

Don Boudreaux: Yes. And so: 'We don't have to rely upon individuals. In fact, we should delegate to the government the power, the authority, to tell us what to do, the government, because it has this overarching viewpoint. It then will allocate resources for us in much better and more efficient ways than us individually in our messy own ways, doing it in a decentralized manner.'

Buchanan said, 'No, it won't. That's just fundamentally mistaken.' So, he's warning against that view.

At a second level, you didn't mention, but I think you're getting to this article of Buchanan's that we want to discuss, and that's his 1978 piece, "Natural and Artifactual Man." At least, I see some of that in what you just said.

Russ Roberts: Yep.

Don Boudreaux: So, in that piece, which Buchanan wrote for a Liberty Fund seminar that he was attending in 1978, he says, 'Look, obviously there are a lot of constraints that human beings face in the real world that are just unavoidable. We can't flap our arms and fly. That's just a natural constraint. But,' he says, 'economists are wrong, or anyone is wrong, to assume that each individual has well-formed preferences and they remain that way forever. Or that these preferences just somehow change.' Yes, preferences change; but they just--we human beings just experience a change. Yesterday I liked vanilla ice cream more than I liked strawberry ice cream. Today, vice versa. Buchanan said, 'Yeah, sometimes that does happen. But an important part of being human is the desire to change your own preferences. We have a preference for changing our own preferences.' So, that's the 'Artifactual Man' part. He would write it today 'Natural and Artifactual Persons,' obviously.

And so, Buchanan said, 'It's just part of being human, that we want to be a different person in the future. And so, we act today in a way that we hope will make us this different person in the future.'

And, you know, for anyone this side of sociopathy, we want to be a better person in the future. We may achieve that. We may have a wrong assessment about whether that really will make us a better person, but people always want, people constantly want to change themselves.

So, we have preference for[?] preference changes, to put it in terms of modern economics.

And, this shows something that you mentioned at the beginning of our talk. There was a very philosophical side to Buchanan. He wasn't willing to simply take this simple device of, 'Okay: fixed preferences--let's see how people act with respect to these preferences,' and assume that that's what they want. You may be buying education for yourself today not because you want to increase your monetary income. Maybe that's the only thing. But, maybe you're buying education for yourself today because you want to become a different person in the future.

And, an interesting implication of that is, and Buchanan explicitly understood this: Let's say you succeed. You buy education for yourself, and you become this different person in the future. The different person in the future might look back upon the actions that you took today and say, 'Oh that was a mistake.' But, there's no way that today you can know that.

And so, this is just one of these features of reality that Buchanan said is interesting and we have to live with it. As we become different people, as we act to change who we are, we can never be sure if we'll be happy with that. Because, our preferences change.

And so, I have preferences today that make me think I want to be something different tomorrow. If I succeed in making myself something different tomorrow, I may look back and think, 'Oh, that was a mistake.' And this [?]--this shows Buchanan's deep humanity, in the sense that he wanted to understand how human beings as we are engage not with just ourselves but with the world around us and other human beings. And, you just get such a profound appreciation of the exchange process, of the human enterprise by reading philosophically-deep economists like Buchanan.


Russ Roberts: Yeah. I just want to reference a couple of recent EconTalk episodes, which listeners may have noticed this is very similar to. Agnes Callard writes about aspiration : the idea that we aspire to be something different than we are now. L.A. Paul talked about, on the program, from her book, I think the book is Transformative Experiences, she talks about what she calls the 'vampire problem.' Before you're a vampire it looks horrifying. After you're a vampire, they all seem pretty happy. Not every one of them. But, they look back on their former tawdry life as mere mortals with some shame, probably. And, therefore, how do you choose? What does it mean to maximize your utility in that framework? It's not a meaningful question. Buchanan really says that.

It also echoes work by Harry Frankfurt who talks about human beings . So, we just don't have wants. We have wants about our wants, which is a different way of saying what you just said. And, he has a lot of interesting things. He writes really thoughtfully on that, obviously, Frankfurt does, and maybe we'll put some links up to that.

But, I want to just focus on one little semantic thing that I think is important for listeners. The title of his article is "Natural and Artifactual Man." And, as you say, he'd say 'person/people' or some other nongendered formulation presumably. Or he might now. Who knows.

Don Boudreaux: He wasn't just talking about males.

Russ Roberts: Yeah, obviously. But, I want to focus on the word 'artifactual,' which is not a common word. And it easily could be heard, especially if English is not your native language, as artificial. They're related.

But, think about the word artifact. We use the word 'artifact' as something--the 'arti' part of that is the same root as 'artisanal.' It means that somebody crafted it. And, an artifactual human being is self-crafted.

The idea is that I'm a vessel to be transformed. I'm a vessel to be shaped. Think about a potter shaping a piece of clay.

Now, there's a tension there, which is: If you've ever tried to change a habit, you know it's really hard. So, we're not so--the clay sometimes gets pretty hard to manipulate. But we also know we do change.

And, I think even when we don't change, aspiring to that change, is--there's something noble in the human enterprise about it.

So, to summarize this piece of our conversation and to bring the two articles together, which was your original idea. We were talking about--I think the first talk we said, 'Well, have you read "Natural and Artifactual Man"?' And it's a fabulous piece because it ties in--even though it was written 15 years later roughly, here's Buchanan in 1963 saying, 'Unless I have this sterile view that human beings [?you and me?] just maximize utility, that's a problem for a robot, a computer. Real life's messier, more complicated.' And, then he takes it, and he enriches that idea in 1978 and says, 'It's more complicated because we have a say.'

These are not natural man, or natural human beings, or animals. They're stuck with what they like and don't like. They have basic fundamental urges of food, shelter, security, sex, etc., recreation. Human beings have all those things, but we can rebel against them. We can decide how important they are to us. We can choose to not do everything that "comes naturally to us."

And, the reason this is so, I think, fascinating, thinking about economics is--I think I heard it first from George Will, this really lovely formulation, which is: Where you stand depends on where you sit.' And, what that means is: If it's in your incentive, you're sitting in this situation, where your bread is buttered by somebody who believes x, because otherwise you're going to have a lot of discontent. You might get fired. And nobody wants to get fired. So, you tend to follow the incentives. And, that's an essential part of economics.

In fact, Steve Levitt, who was on the program recently, I think he believes that is economics--is that people respond to incentives. And the economic problem is to get the incentives right. And, certainly that is part of it, part of economics.

But, at the same time, I think one of the reasons that normal human beings hate economists, and hate economics, is the implication, 'Oh you're just a robot.' 'You'll just do--if I want to get you to do something different, I just need to flip a switch. I'll just jack up this price, or lower this price, and I can steer you without you even knowing. I can manipulate you.'

And, what Buchanan is saying is that that is a incredibly sterile view of the human enterprise. I don't think he would deny that people respond to incentives. Of course they do. But, I can't help but think about--I think I mentioned this recently--it's going to come out in another episode. I think that's going to come out in a little bit.

When I think of Solzhenitsyn, in his book In The First Circle, or Vasily Grossman in his book Forever Flowing, or Everything Flows. There's two different translations. A lot of that book is about how people under the most dire incentives--life and death, in the Gulag--it would be the same thing in the concentration camps that Viktor Frankl writes about in Man's Search for Meaning--here are people who have every incentive to do anything they can, because otherwise they're going to die. And what Solzhenitsyn and Grossman are honoring in those books are the people who said, 'No. I'm not going to follow my self-interest narrowly defined. I don't want to become that kind of person. I don't want to be a person--even though I recognize it's a zero-sum game and that piece of bread, it's a piece of bread if my neighbor gets it, that means I don't have it. I don't want to be that person. I'm not going to respond to that incentive. I understand I have that incentive.'

And, I think a huge mistake that we make--I'm almost done with this long rant--the huge mistake we make in economic education is we mistakenly, grotesquely, teach our students that what is self-interested is moral. Or ethical.

I was talking to high school students recently and I challenged them. I said, 'You find a wallet in the street. It's got $10,000 in cash. No one's around. Should you keep the money? What does economics predict you should do?' Answer? They almost all said, 'Oh you should keep the money because that's in your own self-interest. That makes your utility higher.' I said, 'Well what if you feel guilty about keeping the money?' 'Oh, I guess that might go into the calculation as well.'

And, then I said, 'Suppose you have no conscience.' I asked them what was rational, by the way. They said the rational person should keep the money. Wow. What a bizarre thing.

And, I said, 'Suppose you're a person who has no conscience. Doesn't bother you at all. You just get to enjoy the new iPhone you're going to buy with the cash that you find. Do you want to be that person? Could you imagine saying to yourself:I want to aspire to being a person who feels guilty. I want to live in a world where people feel guilty taking money from people they can return it to.' And, I assume that, in the example that the wallet has your name and address and you can return it.

And, I think, we have, as economists--and Robert Frank has written about this; I used to be skeptical about it but I think he's right--by teaching people a narrow, uninteresting version of utility maximization, a sterile version, we've stripped out this part of aspiration and the potential we have to rise above ourselves.

And, I just think that's a terrible mistake. And Buchanan was sounding that. I didn't read it until about a month ago, but I've been thinking about it implicitly for the last six months. And, I think he's got a very deep and fabulous formulation of it.

Don Boudreaux: Yeah. So, let me tie the two essays together in a way that's different than yours but complements it.

So, Buchanan has this great line that--even he thought was great because he italicized it and uses it twice in the concluding paragraph. But, it's really nice line. He says in the concluding paragraph of "Natural and Artifactual Man," he says: 'Man wants freedom to become the man he wants to become.'

Russ Roberts: Say it again. Slow down. Say it again.

Don Boudreaux: 'Man wants freedom to become the man he wants to become.' In other words, he doesn't want freedom in order to maximize utility. That's how economists normally present it. That's how Milton Friedman, as great an economist as he was, that's how George Stigler, as great as an economist as he was, that's how they would formulate it. Right?

So, we have this utility function--that's what economists call it instead of preferences--and I want to go through life and achieve as many of my preferences as possible. And, when the government obstructs me from doing that, it's preventing me from achieving as many of my preferences as possible. So, that's why freedom is bad--

Russ Roberts: Why freedom is good. Why regulation--

Don Boudreaux: I'm sorry. That's why government interference is bad. That's why freedom is good.

Freedom allows me to achieve as many as possible of my preferences--

Russ Roberts: Get more stuff, more change, better.

Don Boudreaux: And so, the government interference blocks that.

Buchanan's point was much deeper. Buchanan wouldn't have disagreed, of course, on a purely mechanical point: 'Well yes, if you have a set of preferences and government stops you from, 'No you can't buy that loaf of bread because you're Jewish.' Well, that's interfering with your ability to achieve happiness. You would disapprove of that, of course.'

But, his point is more profound. His case for freedom in this instance is much more profound. Each of us wants to become someone different. And it's a good thing. It's a natural human thing. We want to become someone different. And, there's no way--it's not even theoretically possible, forget about practically possible--it's not even theoretically possible for government to know, for the state to know, for some third party to know, what you want to become, what I want to become.

And so, when it blocks, when it obstructs our freedom of action, it obstructs our ability to construct ourselves, to use our artisanal control over ourselves to become an artifactual person different than the one we are today.

And so, Buchanan's case for freedom, his case for freedom in this instance, is: Give people maximum possible scope, so that individuals can choose to become different individuals. It's not just about maximizing utility.

Of course you can always--as you know, Russ, as an economist--you can always cram into a utility-maximizing description what's going on: 'Well, it's all ultimately about maximizing utility.' But, you lose so much there.

It's about: 'I want to become a different person. I want the freedom to become a different person.' And, it's a very rich and more humane way of looking at human action than is the typical neoclassical, even the typical free market neoclassical way of looking at it and justifying freedom.


Russ Roberts: Yeah. And, I want to make a distinction between different kinds of changes we might make. And, of course Agnus Callard in her book Aspiration and in our conversation talks about some of these differences. I might want to become a great golfer. Okay? So, to do that I've got to work at it, and that's part of my transformation. It's a much narrower version of what I think Buchanan has in mind generally, but it's an example of it. And, to do that, I might need lessons. And, to have lessons, we need to have a society that's wealthy enough that somebody can specialize in being a golf pro, which is a very modern first-world phenomenon. My kids are all into cooking. They watch hours of YouTube, and they've become incredibly sophisticated cooks and consumers of food, and have a nuanced understanding of flavors and interactions--which somewhat bewilders me--akin to them becoming passionate golfers. I was like, 'Well okay that's different. Not me, but fine.'

I get the externalities. I get the positive externalities. I get to eat their food a lot, which is when they're home, which is wonderful because they're phenomenal cooks, all of them.

But, that's about learning a craft. And, that's not really, to me, what Buchanan is talking about.

What Buchanan is talking about is what Dan Klein talked about in our episode on Adam Smith and Honest Income, which is that--this is such a deep idea and I kind of hope to write about this in my new book--the idea that something that starts off as harmful to you in the utility sense--returning the wallet. If you don't have a conscience, returning the wallet, you're a sucker, right? You just gave away $1000 for no purpose. And, what I understood Dan to be arguing--and he invoked Montaigne and he invoked Smith--is that the goal of becoming a better person, the way you get there, is you habituate things you used to think of as self-less and turn them into self-ish.

And, that sounds bizarre, so let me just try to explain it.

So, I returned a wallet a year or so ago. I think I've talked about it on the program. I did actually find a wallet in the street in San Francisco, and we eventually got it back to the owner, which was quite complicated. It wasn't as straightforward as I'd hoped. But, I'm really glad I did it. And, if you say, 'Well that wasn't selfless. You got benefit from it. You felt good about yourself.' And, that's the sense in which, like you said, you can always cram everything into a utility-maximizing thing.

But, I could imagine a me, and maybe it's a younger me or a different me, where I wouldn't have returned it.

And, through the process of returning it and creating a self-image and an identity of myself as an ethical person, as a caring person, as a person who gets pleasure from other people's pleasure, I transformed myself into taking something that used to be a sacrifice and turning it into, actually , yeah, a self-interest thing because I got pleasure it in a non-monetary sense.

And, I think that is one of the deepest ideas I've heard in a long time, this idea that through the regular performance of good deeds, say, you become a person who learns to enjoy good deeds, is a crazy idea. And, going back to the vampire problem: Well, don't change yourself that way because then you have to give back all the money.

Don Boudreaux: Yeah. It's the same--yeah. It's the same thing.

Russ Roberts: But, that's a good thing. And, it's a good thing for you.

Don Boudreaux: And I can imagine--when you gave the example of returning the money from the lost wallet, I can imagine lots of economists writing papers saying, 'Oh, well, you should keep it, because if you return it you reduce the incentives of people to take care of their possessions,' so you're going to promote people losing their wallets.

And so, this is another example of why people don't like economists.

Russ Roberts: Hate economists. Yeah.

Don Boudreaux: It's very easy to come up with these ex-post justifications for all sorts of actions.

That said, let me say though: Look the danger of that. The danger of people disliking economists because of that, is that there are a handful of situations, very important ones, where the economists' explanations are valid--ethically elevated yet not well enough known to the general public.

But, when economists come along with these sort of trivial explanations such as the hypothetical one I just suggested, that really does our profession a disservice, I believe.

Russ Roberts: I have not read the Israel Kirzner response to the article that you referred to, but when I was reading the Buchanan article I thought, 'Nyeah; it kind of goes too far.' Because I do have to take account of incentives. I do have to take account of how people make choices self-interestedly.

So, I think what Buchanan's doing--and I'm just going to add one thing here because I think it's important. We've talked about a lot on the program, this Peter Singer example of the drowning child, and you walk by, and should you save the child? You're going to ruin your shoes. They're worth $150, but you're going to save a life. Does the economist say, 'Keep walking. Who wants to lose $150?' And, Singer's point is that, 'Well, we all agree that the right thing is to save the kid,' and I think the economist's pushback--my pushback, sometimes--on that is, 'Yeah, well doesn't that change the incentives?' If every time a kid's--as somebody recently sent me an email about--every time a kid's in the pond, do their parents say, 'Oh I don't have to worry about the kid. Some stranger can save them.'?

Don Boudreaux: You know--this is a more general point. The older I get--I think this is true for everyone, no matter what field they're in--the older I get, the more I appreciate wisdom as opposed to smarts.

And, it's just a lot of what I find more and more appealing now are people who exercise good judgment. And, good judgment, it's not a function of intelligence or IQ [intelligence quotient].

And, when I was younger, I was much more enthusiastic about these clever incentive arguments. And, I'm much less enthusiastic about them today. But--and that's when I'm around my fellow economists. When I'm engaged with the general public, all I can just think of, 'Don't you understand incentives? Don't you understand incentives?'

And so, it's a matter of judgment. If you push--if you become too clever as an economist in overplaying the incentives card, you're using poor judgment and you're causing people to become deaf to you in the future when you have something genuinely important to say about the role of incentives.

And, there's no formula to say, 'Well, we should use the incentive argument up to this point but not beyond that point.' There is no formula for that. It's a matter of judgment and wisdom. I wish there were a formula for it, but there isn't.


Russ Roberts: So, let's bring this back full circle to where we started. And I think--I think for me--I have a lot of trouble figuring out the full implications of Buchanan's argument. Maybe you've thought about it. I'm sure you've thought about it more than I have.

So, he's saying, 'Don't focus on this sterile question of how to get people to do what you want. Don't treat people just as robots who just go around trying to get the most stuff.'

So, that's part of what he's saying.

He's saying something deeper than that, obviously. He's saying: The focus on that as a profession has misguided--we're misguided. We need to think about a different focus, and that's to focus on the marketplace.

And, I think when you and I say 'Focus on the marketplace,' the average listener, even among economists, says, like, 'You mean like the stock market? You mean, like, the price of shoes?' Like, that's what we ought to focus on?

And, I don't think that's what he's saying--

Don Boudreaux: Not at all. Not at all--

Russ Roberts: I think he's saying something quite deeper than that. So, you and I both spend a lot of time teaching. When I used to teach, and you still do in the classroom, talking about supply and demand. Buchanan's probably a fan of that--more or less. But, he's not saying, 'Oh we ought to do more supply and demand and less consumer theory.' Which I think is a good idea, by the way. But, that's not his point.

Don Boudreaux: Yeah, yeah. That's not what he's saying.

Russ Roberts: He's saying something a lot deeper than that. Try to bring us home with a summary of that.

Don Boudreaux: So, in--so, that's a great question. In the 1964 article, "What Should Economists Do?" he explicitly--

Russ Roberts: 1963 or 1964?

Don Boudreaux: Well, it was written in 1963; it was published in 1964.

Russ Roberts: I only ask, Don, because listeners don't know this: but Don knows every date. And I suspect that when he was doing--he knows when people were born. He knows how old I am. He might even know my birthday. He is--

Don Boudreaux: December 20.

Russ Roberts: No, 19. No, you're wrong. A rare error.

Don Boudreaux: I know the year, too. I didn't think you wanted me to say that part.

Russ Roberts: No I don't mind. 1954--

Don Boudreaux: 1954.

Russ Roberts: Yeah. So, Don has this interesting thing where he's a pre-Google, totally reliable source. So, when he said 1964, and having said 1963[?] before, I knew there was some subtle thing there. And, when you did your summary of Buchanan's life, and when he met Tullock and all that, I have a feeling you weren't reading it.

Don Boudreaux: No, I wasn't.

Russ Roberts: You were just, kind of--because people can't tell in the Zoom world--but I have a feeling you just knew all those dates by heart. But, anyway, go ahead. Sorry I interrupted you.

Don Boudreaux: Some people are oceans of knowledge; I'm a cesspool of trivia, as I heard someone say.

So, back to "What Should Economists Do?"--the article published in 1964. In there, Buchanan explicitly criticizes the theory of perfect competition--which remains a mainstay in neoclassical economics--

Russ Roberts: and, textbooks--

Don Boudreaux: And, in that theory--I don't have to get into it in detail--but in that theory, every individual--every individual--takes the rest of the world, including other individuals, as just given. It's like you are Robinson Crusoe, and you're on this island, you're in this place where you have all these opportunities and constraints, and they are just what they are. You can't change them. You don't talk to anyone. Nothing changes. You just react to all the numbers that you see. You have your own preferences; and so given what people are selling, given the prices at which they're selling them, you act in a way that maximizes your own preferences.

Buchanan says: That's not the world we live in. The world we live in has all sorts, at any moment, all sorts of unfulfilled opportunities and problems to deal with.

And so, when we go out into the world, I don't just see you as a seller of shoes. I say, 'Look. I have this idea for making better shoes. Let's, you and I, go into business together,'--again, this is just an example--'go into business together to make this different kind of shoe that I think people will want.' And so, you and I construct this different possible exchange arrangement.

Or, I see that there is a swamp, to use his example, a swamp that's mosquito-infested, and people don't like that and so I gather with my neighbors and say, 'Hey look. Why don't we all pitch in and create this little pool of funds, and we'll hire someone to fill in the swamp and that will eliminate our mosquito problem?'

In the world of perfect competition, you as an individual don't engage with the humanity of anyone. There are other individuals in that world, but they just do what they do. They are selling at a price that's not going to change. They're selling whatever it is, and the quality that's not going to change. And so, it's just as if you're dealing with sentient rocks. Or programmable rocks. You press the button and the rock does whatever the rock does. Machines. And, Buchanan says, 'We're not dealing with machines.'

And so, we go out into the world, we talk with people, we propose different exchange relationships. Not all of them will work. None of them will ever work perfectly in the eyes of God. But they always lead us, to the extent that we're free, they generally lead us to improve our world.

And, that's how we call--that's what economists should do: Look at how people engage with each other, examining institutions within which these engagements occur to see if we might be able to improve the institutions in some way.

But, don't treat people as if everyone else in the world is merely a mechanical means to your own end. Understand that even though that person can be a means to your end, you can make yourself a means to that person's end. And so, exchange with that person. Exchange not just things, exchange ideas. Exchange ideas for opportunities for what to do. And, this is a much more rich and accurate understanding of the world that we live in.


Russ Roberts: So, I want to go back. I forgot to finish a thought. I want to finish it and let you react to it, and then one other thing I want to add then we'll be done.

We were talking about freedom and the freedom to become the person you want to become, and I used golf as an example and the YouTube for cooking and all that.

I forgot to add the next part, which is the most important part. It's not so much the freedom to be "a good person." That was the example we talked about, and that's important. But, there's something else there, which is that: I might want to be a golf pro. It's not just, 'Oh I can become better at golf.' My whole self, my identity, my whole work life, requires freedom for the kind of exchange that you and I spent a lot of time talking about over the years, Don, which is the power of the division of labor and specialization. And, how you can't have that without tremendous diversity of people, scale.

That's something I learned from Buchanan, actually, at a workshop. I did an episode on it on Smith and Ricardo. This idea that a lot of our specialization doesn't come from just the fact that we're different, which is Ricardo's insight. It comes from the fact that as the economy grows, there's more opportunity for specialization: 'The division of labor,' as Smith said, 'is limited by the extent of the market.' And, think about a world--think about growing up in 1200. Besides the fact that life was a little bit nasty, brutish and short, the career choices were quite limited. Most people were farmers, right? And there are people who love to farm, God bless them, but if you aspired to be something other than a farmer, you couldn't do it.

And, the other piece of, I think, Buchanan's theme is that that freedom for the creativity and expansion, is what allows us to become a contributor to the others around us through the goods that we produce, or the businesses we start, or the work we do within someone else's business who has a vision.

And, the other thing I wanted to close with for me, and then I'll let you take us home, which I probably already said, is that I think about something alike the Y Combinator, which is an incubator for ideas. I had Nathan Blecharczyk on--I can't remember if I'm pronouncing his name correctly, but he's one of the founders of Airbnb. And, Paul Graham, who has also been on the program, was running, was the head of the Y Combinator at the time. And, Airbnb was proposing an idea for a new way that people could live in other people's houses. Ridiculous, crazy idea that everyone at Y Combinator said was a bad idea.

But, they funded them because they liked the cereal boxes that they made as a fundraiser for the program. And, if you haven't heard that episode, go back and listen to it. It's really an extraordinary thing.

But, that institutional arrangement called venture capital is something that I think Buchanan was talking about. Without that institutional setup--which requires certainly regulatory structure, it requires a certain innovation--that seeded an enormous number of other innovations that have given people ways to express themselves, their gifts, their dreams and so on. And, you and I talk about this all the time. You know, I wrote a book about it which I know you're kindly a fan of, The Choice. That book makes the case for why free trade makes you richer.

But, ultimately I argue in that book that the reason trade is important is because it expands your opportunities to express your gifts, your dreams, your skills, and choose where you want to be in this great, vast network of human interaction we call the marketplace, which is again not about the farmer's market or the stock market. It's about this enormous web that no one weaves, that no one controls, where we choose our place; and we can fit in over here and over there and we can step back in other places. And, I think that's what Buchanan is teaching us to appreciate the richness of that and to study it and think about it. And, I think he was right.

Don Boudreaux: Yeah. So, I'll end with this. One of the--and what you just said is a testament to what I'm about to say. One of the most pernicious myths about the case for free markets, pernicious misunderstandings about where free market economists come from--and this is including even Milton Friedman, right?--is that all we care about is maximizing material gain. Right? Of course, we recognize the importance of material prosperity. If you're starving--

Russ Roberts: Utilitarian[?]

Don Boudreaux: Yeah. But, read Hayek. Read Buchanan. Read Julian Simon. Read Russ Roberts. It's not just about--Deirdre McCloskey [should be 'Read Deirdre McCloskey'--Econlib Ed.]. Right? I'm leaving many out. It's not just about maximizing the amount of stuff and sensual pleasure you get. I don't know, maybe there are a handful of economists out there who believe that. They haven't had any influence on me. My great heroes--Buchanan, Hayek, you, Julian Simon, Diedre McCloskey--these are people who recognize that life is about becoming. It's about dealing with uncertainty and imperfections and trying to grapple with them. And, the individual who grasps only for more material stuff and sensual pleasure is a really pathetic creature. No one wants to be that person. No one would want to live in that world, in a world populated chiefly by those people.

And, Buchanan's--the two essays that we spoke about today, I think are two of Buchanan's best contributions in making this point.


Russ Roberts: Yeah. I think I'm going to try to prettify, salvage what you just said. I don't know if you'll agree with it. But, I think most economists would say, 'Oh, no. We don't care about just stuff.' But, when we talk about standard of living, which would be the way that we would pretty it up, that allows all kinds of other things: longer life and so on; and other things. All the things I can't measure, really. The quality of life, the fact that I can play tennis into my 80s if I want because I have an artificial knee that couldn't have been afforded 100 years ago but now is relatively commonplace.

That, the economists say, 'Yeah, well, when I say "standard of living" that's just shorthand for everything else.' And, I think the challenge is that standard of living is measurable, sort of. You can measure it imperfectly.

Don Boudreaux: We have pretty good proxies for it.

Russ Roberts: Yeah. I think we've been seduced by that to think, if we're not careful that's all there is.

And, I think what you're warning about is the importance of remembering: It is just a proxy. It's not anything close to what we really care about.

Don Boudreaux: Yeah. Yeah. And, this point, by the way--

Russ Roberts: And, I don't think--by the way, I don't think Milton Friedman only cared standard of living. To be fair to Milton, he did care about charity and some other things.

Don Boudreaux: No, no. So, even though Milton Friedman was much more mainstream conventional economist and focusing on money and quantities, when you read Friedman's work deeply, he understood that humanity was more than about just maximizing stuff and that self-interest to be worthwhile had to be enlightened self-interest, not grasping, greedy, unenlightened self-interest.

And so, people like Buchanan--the case for free markets is the case for human flourishing. It's not the case for maximizing GDP [Gross Domestic Product], contrary to what a lot of people think. Yes, there's a connection between more GDP and ability to flourish. But ultimately it's the ability to flourish that matters.

And, the case for free markets is: You and me and other individuals, we're the only ones who know how we want to flourish. I don't want some bureaucrat or some politician in some distant capital telling me how I should flourish. I want the freedom to become the man I want to become.

Russ Roberts: My guest today has been Don Boudreaux. Don, thanks for being part of EconTalk.

Don Boudreaux: Thanks, Russ.