A Critique of Buchanan on the Theory of Choice

"Neither the consumer in the supermarket nor the construction engineer [building a dam] faces an economic problem; both face essentially technological problems. [Thus], the theory of choice (resource allocation) must be removed from its position of eminence in the economist's thought processes, [since it] assumes no special role for the economist, as opposed to any other scientist who examines human behavior." - J. M. Buchanan, "What Should Economists Do?"

Perhaps it is true that, provided that his preference scale is intertemporally fixed, the consumer in the supermarket faces what might be described as a more complex variety of the technological problem. However, from the point of view of advancing economic theory this is beside the point. What matters in this context is that the situation faced by the consumer in the supermarket, unlike the one faced by the construction enginner building a dam, can be described within the economic framework, and thus used to derive or illustrate many fundamental laws of economics.

Having a multiplicity of goals and a supply of homogeneous means at one's disposal results in a situation whose analysis allows for deducing the law of diminishing marginal utility. Having a multiplicity of goals while facing scarcity of time implies the existence of an intertemporal ranking of preferences, and thus the existence of positive time preference, which in turn sheds light on the phenomeneon of interest rate. In the absence of a uniform scale of exchange value expressible in terms of cardinal numbers and reflective of socially meaningful utility appraisals, i.e, the free market price system, the consumer is unable to evaluate the opportunity costs of his decisions, even if he is otherwise omniscient. And so on for many other economic theorems and phenomena.

In other words, pure theory of choice, understood as abstracted from uncertainty and genuine market exchange, can still provide us with a rich source of specifically economic insights, and it most certainly does not commit us to a mechanistic vision of human action. Thus, it has to be concluded that Buchanan, as well as Kirzner, were mistaken in their assessment of Robbins as a neoclassical maximizer rather than as a Misesian praxeologist, since while it seems reasonable to assume that it is catallactics that contains the most significant and eye-opening truths concerning the nature of human action (and interaction), it is mistaken to conclude, as Mises understood all too well, that the theory of market exchange exhausts the domain of economics.

Buchanan as a Proto-Dehomogenizer?

"What, then, does Barry mean (and others who make similar statements), when the order generated by market interaction is made comparable to that order which might emerge from an omniscient, designing single mind? If pushed on this question, economists would say that if the designer could somehow know the utility functions of all participants, along with the constraints, such a mind could, by fiat, duplicate precisely the results that would emerge from the process of market adjustment. By implication, individuals are presumed to carry around with them fully determined utility functions, and, in the market, they act always to maximize utilities subject to the constraints they confront. As I have noted elsewhere, however, in this presumed setting, there is no genuine choice behavior on the part of anyone. In this model of market process, the relative efficiency of institutional arrangements allowing for spontaneous adjustment stems solely from the informational aspects.

This emphasis is misleading. Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of "as if" functions that are maximized. But these "as if" functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will." - J. M. Buchanan, A note stimulated by reading Norman Barry, "The Tradition of Spontaneous Order," Literature of Liberty, V (Summer 1982), 7-58.

In the above fragment the late James Buchanan appears to hint at the notion that the informational deficiencies of a hypothetical central planner (the focus of what has come to be known as the Hayekian "knowledge problem") are distinct from and in an important sense less fundamental than the central planner's inability to evaluate his decisions against the benchmark of consumer sovereignty expressed in freely demonstrated preferences, i.e. the benchmark provided by the free market price system (the focus of what has come to be known as the Misesian "calculation problem").

In other words, even if the central planner can be hypothetically assumed to know everything that is logically knowable to him (i.e., everything about the available supply of consumer goods, producer goods of various orders, and the existing technological possibilities), he is still bound to lack any intersubjective yardstick for assessing the extent to which his decisions satisfy the desires of the consuming public, since these desires can be acted upon and meaningfully reflected only within the institutional arrangements whose existence is logically incompatible with any top-down economic design (notice Buchanan's very Misesian emphasis on the logical impossibility, rather than the practical unworkability, of rational central economic planning).

In sum, the fragment quoted above seems to suggest that, similarly to Coase, Buchanan understood, even if not as explicitly as the proponents of the Mises-Hayek dehomogenization thesis, that these two authors' arguments against the unfeasibility of central planning are perfectly compatible, complementary, and stronger in tandem, but nonetheless essentially different.