Nobel Laureate James M. Buchanan passed away today at the age of 93. He founded the field of public choice economics, and his writings have had a greater impact on me than any other economist I have read. This summer I heard stories about him from people who knew him, and apparently he didn’t always observe the rules of order in Liberty Fund conference discussions. When you win a Nobel Prize, I’m sure people will give you a little leeway too. I made this poster for Econlib to commemorate the passing of this giant of 20th century economics.
I found the lovely quote above in Rothbard’s Praxeology: The Methodology of Austrian Economics, and it is a perfect explanation for the Austrian skepticism of empirical methods. Reducing human decision-making into neat numbers misses the dynamic process of markets, and gives a false sense of knowledge. (See Hayek’s Fatal Conceit.) This illusion leads many to believe that we can “maximize” the common good, social utility, or whatever they call it these days. Because all people are exactly the same, correct?
No. And so, there is a place for mathematics in economics, but math is not the epitome of economic thinking. People are not robots, and we need to embrace human individuality to understand why humans do what they do.
In his treatise “Human Action”, Mises devotes a short chapter (5 pages) to explaining what competition is, and what competition is not. He combats the misunderstanding of markets that is at the root of Antitrust legislation and interventions to break up “monopolies.” The fact that monopolies exist is not a problem as long as new competitors have the opportunity to pitch their ideas to the consumers without legal barriers. The consumer decides how successful an entrepreneur will be based on how well the entrepreneur serves the customers. As Mises puts it, a poet may have a monopoly on his own rhymes, but that doesn’t mean he can command the market for them.
You can read Mises’ excellent chapter on competition here on Liberty Fund’s Online Library of Liberty.
Jim Buchanan, Nobel Laureate and pioneer of Public Choice Economics, is one of my favorite economists. His keen insights into the reality of politics have reverberated through popular thought, and have changed the way many (especially economists) view the political process.
Want to learn more about his ideas? Check out “Public Choice” in Econlib’s Concise Encyclopedia of Economics.
A quotation poster I made for Econlib, featuring the sage F.A. Hayek.