•y Notes and Communications•z Adam Smith, James Buchanan, and Classical Liberalism: An Interview with James M. Buchanan* James M. Buchanan Masazumi Wakatabe Yong J. Yoon is the authors' interpretation and extension of Introduction the Smithian proposition that the division of The idea of interviewing James Bu- labor is limited by the extent of the market. chanan, 1986 Nobel laureate in economic But Buchanan's involvement with Adam science, began with a casual conversation Smith does not stop at economics. Having between the two of us, Yong J. Yoon and developed a deep admiration for the tenets of Masazumi Wakatabe. Yoon, whose field is the classical liberal tradition, Buchanan economic theory, has been a close collabora- became its foremost torchbearer in the post- tor of James Buchanan, and together they World War II era. His major contributions to have produced a book and several papers, economics, public choice theory and constitu- including their coedited volume, The Return tional political economy, are regarded as to Increasing Returns (Ann Arbor, MI : Uni- representing the rehabilitation of that tradi- versity of Michigan Press, 1994). Wakatabe tion. is a historian of economic thought. The con- As that conversation drew to a close, versation took place while Wakatabe, during both Wakatabe and Yoon were sharply con- a sabbatical year, was a visiting scholar at scious of the many questions that remained the James Buchanan Center for Political regarding how the philosophy, politics, and Economy at George Mason University, where economics of Adam Smith and the classical Yoon is a senior research scholar at the liberal thinkers merge into Buchanan's Center for Study for Public Choice at George thought. The next step seemed natural : if we Mason University. have questions, why don't we ask him in Their point of departure was Yoon's person? Yoon suggested the idea to Jim Bu- new book project with Jim Buchanan, tenta- chanan, who agreed to give us the opportu- tively entitled The Extent of the Market, and nity. Wishing to make the outcome available Buchanan's relationship with Adam Smith to the public, Wakatabe contacted the editor and classical liberalism. As the working title of the History of Economic Thought, who of the book clearly suggests, the monograph agreed to publish the interview. That is how * We are extremely grateful for the Center for Study of Public Choice , George Mason University, and Mrs. Jo Ann Burgess for providing us with much needed help including transcribing the interview. Wakatabe would like to thank the Japanese Society for the Promotion of Science (No. (C) 18530150) for financial assistance. -124- Notes and Communications a casual conversation ultimately was extended to become an important interview The Interview project with James Buchanan. Yong J. Yoon (hereafter abbreviated as Y): On Saturday, 30 July 2005, we visited Considering the correspondence between Allyn Young and Frank Knight, I wonder Jim Buchanan and discussed some of the if Frank Knight accepts Adam Smith's main ideas concerning Adam Smith, James proposition at all. Smith's proposition Buchanan, and classical liberalism. One ques- has been later interpreted as increasing tion area turns naturally to Buchanan and returns ; and Frank Knight did not Moon's prospective book, The Extent of the accept the idea of increasing returns. So, Market. The second topic focuses on ques- what is the crux of the misunderstanding tions regarding Buchanan's interpretation of between Frank Knight and Allyn Young? Smith as a contractarian, as it was expres- James M. Buchanan (hereafter abbreviated as B) : Well, that's a good question. sed, for example, in his paper "Adam Smith Frank Knight told me that the only econ- as Inspiration" delivered in Seoul, South omist he had ever learned anything from Korea in 1996 [reprinted in The Collected was Allyn Young. (Laughter.) He had Works of James M. Buchanan, Indianapolis : been Allyn Young's student at Cornell. Liberty Fund, 1999-2003, vol.19, pp. 289-3031. He had a great admiration for Allyn The last topic addresses the emergence, cur- Young. And I always said - as a side rent state, and future of classical liberalism. issue - that Edward Chamberlain's whole The Theory of Monopolistic Com- James McGill Buchanan was born in petition was simply notes taken from Murf reesboro, Tennessee, in 1919. After Allyn Young's course. graduating from Middle Tennessee State Masazumi Wakatabe (hereafter abbreviated College and receiving his M.A. from the as W) : That's right. University of Tennessee, he served in World B : But, it is true that Knight and Young did War II. After the war he entered the graduate not agree at all on increasing returns. school of economics at the University of Knight was not interested in increasing Chicago, receiving his Ph.D. in 1948. He returns ; Knight was interested in the taught at the University of Virginia, UCLA, allocative processes. And he didn't Virginia Polytechnic Institute and State Uni- believe it (increasing returns). He made a big point of the failure of some of the versity, and finally, since 1983, at George neoclassicals, not notably Marshall, to Mason University. He has written numerous separate statics and dynamics. He books and articles, most of which are includ- wanted to get the statics right, that's ed in The Collected Works of James M. what the whole Risk, Uncertainty, and Buchanan, 20 vols. (Indianapolis : Liberty Profit, was about - to spell out the pure Fund, 1999-2003). In 1986, he received the statics of competitive equilibrium, at Nobel Memorial Prize in Economic Science that time. Which he did ; he was the first "for his development of the contractual and to do that. And he wanted to freeze the economy in terms of wants, resources, constitutional bases for the theory of eco- technology, and then see how it would nomic and political decision-making." He play out - what would be efficient ; what now lives in Dry Run, Blacksburg, Virginia, wouldn't be efficient. He didn't really where the interview took place.1) jump beyond that and talk at all much -125- 経済学史研究48巻1号 about how you might change the outside responsible free men rather than depen- parameters, so to speak. Which is what dent free men. Can we invoke the entre- dominated - at least in that one famous preneurial element of ordinary people to article - Allyn Young's thought. become responsible free men? So, in a sense there was no meeting B : Well, you're mixing up a great deal, in of the mind on that. As far as I know, those comments. (Laughter.) I think that except in this correspondence, they didn't the Adam Smith's general understanding really get into that very much. Knight of market order from what you and I rejected increasing returns on the stan- have called "generalized increasing dard Sraffa grounds ; namely in that you'd returns," is not necessary in order to have monopoly in different industries understand that. You don't need all that and obviously that was not observable. complication in order to understand that. And so empirically he objected to it. But, It seems to me (we've used this terminol- he enjoyed working within the constraint ogy before), that given the parameters of of the constant returns postulate. Work- the economy, there is a set of goods that ing it out, and fully working it out. are viable ; a set of procedures that are At the same time, however, Knight viable ; ways of producing that are was really an admirer of Adam Smith, viable, but if you can extend that fron- but not on this particular context. He tier, those parameters make the market didn't, as far as I know and as I remem- bigger, there would be a whole set of ber, he did not discuss at all the division other technologies and other goods that of labor principle that is the extent of the would make people better off. market notion. He was with the belief And so, if you expand that frontier, that we had to just go over and over and then that sea (of goods and technologies) over again till we fully understood Smith's is out there, and you just have to have deer and beaver example in which you somebody to pick it up. I don't think have relative prices and costs, under everybody needs to be the entrepreneur what conditions, and so forth and so on. here. I think, although you start out from He had a huge admiration for Adam a Smithian postulate, that we are all Smith and his general outlook and per- capable equally of doing it. It is true that, spective on things, but as far as this once an opportunity for rents, in this case particular increasing returns point, I and context, opens up, somebody is going think Knight was just not interested in to pick it out, but there is no way you can that aspect of the matter. predict who it might be. It could be Y : I think the ultimate source of increasing anybody. So in that sense, everybody's a returns is the element of entrepreneur- potential, equally a potential entrepre- ship that we all have. Ludwig von Mises neur, but I don't think you need to bring and Israel Kirzner also mentioned the in the entrepreneurial element quite as importance of entrepreneurship. In sev- much up front as you indicated in your eral places you say that the current fiscal comment. I don't think you need to bring crisis is a symptom of our forgetting the in the Kirzner's approach so much early spirit of classical liberalism.