… is largely a repeat; it’s from page xiv of Geoffrey Brennan’s excellent “Foreword” to the 1998 Liberty Fund edition of James M. Buchanan’s 1958 classic volume, Public Principles of Public Debt; (“new orthodoxy” is Jim’s term for the Keynesian-inspired rejection of classical principles of public finance and of the burden of government debt):
To the standard new orthodox claim that we owe internal debt to ourselves, Buchanan’s response is effectively: What’s this “we” business? Once it is recognized that incidence analysis depends on isolating which individuals in which capacities face a liability as a result of a fiscal operation, claims about the community as a whole are seen to be essentially irrelevant and potentially misleading….
But it is worth noting that there is a kind of intellectual divide between those who conceive social phenomena in a disaggregated way and those of a more holistic, organic cast of mind. Arguably, it is this intellectual divide that most distinguishes micro- from macroeconomists and a fortiori economists as a group from sociologists and many traditional political theorists. Within this divide, in Public Principles of Public Debt, Buchanan establishes himself firmly as an arch exponent of the individualist method.
In light of Geoff’s quite right and quite relevant emphasis on Jim Buchanan’s consistent adherence to the tenets of methodological individualism I post below an e-mail sent to me earlier today by my GMU Econ colleague Dick Wagner. Dick’s e-mail is in response to my asking him for his expert assessment of my previous three posts, here at the Cafe, on Jim Buchanan and government debt. After receiving Dick’s e-mail, I then asked him for permission to post his e-mail here in full; he graciously agreed. Here’s Dick’s e-mail:
If anything, you make the matter more complex than it actually is. To some extent Jim is to blame for this, though the times were different then and one always has to work with the expressions in play at the time to be understood.
The problem arises because a government can never be indebeted, or at least democratic governments can’t. The monarchs of old could be indebted, but in a democracy there is no one person who borrows on his personal account.
In this respect, government is a financial intermediary no different from a bank. Public debt links people who have projects for which they are seeking support with taxpayers who have the means to support those projects. Some of those taxpayers might well support those projects, but many will oppose them.
As a matter of aggregation, it is correct to say we owe it to ourselves. But the statement is also silly and meaningless. Over any closed set of people, aggregate debts must equal aggregate credits. All this aggregate statement does is obscure the reality that public debt is just one more instrument by which those who are politically dominant are able to stick it to the remainder.
Yours Sincerely, Dick