Enraged by their losses, recalcitrant businessmen set up institutions to fight the new order. The one with the greatest long-term impact was the William Volker Fund. Its president, Harold Luhnow, became Hayek’s American patron, paying for his national tour and subsidizing his salary at the University of Chicago for ten years—as well as that of Aaron Director, also at the University of Chicago, and Ludwig von Mises, the leader of the Austrian school, at New York University. It was Volker Fund money that sent Frank Knight and the rest of the American delegates to the conference in Switzerland in that summer of 1947.34
Hayek was vague about where and how “to draw the line” he said must be drawn—this was the core weakness of his book in the view of his friend and intellectual nemesis John Maynard Keynes—but at this point he maintained that a return to Gilded Age laissez-faire was undesirable. Similarly, he and the other founding scholars of the society bristled at being labeled conservative. “We must have the courage to make a new start” for “a better world,” The Road to Serfdom concluded.35
From their ten-day gathering in Switzerland came an enduring transnational, invitation-only network that linked scholars with like-minded journalists and appreciative businessmen and foundation officials. Putting the intellectuals in the lead, the society set out to shift the tide of history—to ensure lasting peace and prosperity by freeing markets worldwide from the collective action and government planning that its members believed so perilous.36
James Buchanan’s mentor Frank Knight enjoyed such regard that he was the only U.S.-born scholar among the three named cofounders of the society. Like Buchanan, and unlike cofounders F. A. Hayek and Ludwig von Mises, Knight had a populist streak. When the Europeans proposed to name the group after Lord Acton and Alexis de Tocqueville, Knight blocked them. Absolutely not, he said. No organization to advance “the free society” and individual liberty should be named after “Roman Catholic aristocrats.” It was because of Knight’s opposition to the Austrians’ suggestions that the group took as its name the Mont Pelerin Society, from the mountain where they met. As Milton Friedman later noted, the name “was selected only because it did not offend anyone, as every other proposed name had.”37
• • •
Even as James Buchanan took inspiration from his mentor and committed to the transnational battle of ideas Knight helped to set off, he was finding his own distinctive voice, in part through wariness about the younger generation of the Chicago school, particularly Milton Friedman, whom he experienced more as an irritant than as a muse. Where the “lovable” Knight fostered others’ growth, Buchanan said, Friedman shamed students with his “dominating intellectual brilliance.” Beneath the personality clash, and perhaps some residual distrust of a Brooklyn-born know-it-all, was an emerging split over what the field should do. Friedman’s avowed approach, if honored in the breach, was toward “positive” economics. Scholars should not make normative judgments in their work, he taught, but instead should develop a “science” through the mathematical testing of refutable hypotheses. As Friedman eclipsed Knight, whose production had stalled by his sixth decade, the new Chicago school became known for its technical proficiency.38
Buchanan, by contrast, felt drawn to an older style of political economy that was concerned more with the social contract and governance of the economy than with mathematical derring-do. By his last year in the program, he was flatly annoyed with the fixation on mathematical “technique.” He mourned the parting of economics from its origins in “a comprehensive moral philosophy” like that of Adam Smith. He dreamed of someday building a program to battle collectivism in a bolder way.
In his last year of graduate school in 1948, in a chance conversation with fellow doctoral student G. Warren Nutter, Buchanan learned that he was not alone. A World War II veteran like himself and a kindred spirit in his politics, Nutter shared his distaste for the prevailing focus in the discipline on mathematical technique and empirical work, even at Chicago. They talked about the contribution that economists of their bent might make if they turned their focus to understanding the big political economic questions of their world.39 Perhaps, someday, they would have a chance to.
Like the Austrians Hayek and von Mises, Buchanan in particular wanted to help others see that the market could coordinate millions of individual projects far better than government could. The market was simply the most efficient means of allocating goods and services but also the best social decision-maker, one that might allow escape from the contentious political realm. To look to politics to promote one’s interpretation of fairness, Buchanan came to argue, was to enable an establishment-controlled economy and coerce others.40 But how to spread that view in an era in which Americans—indeed, people the world over—distrusted markets after the Great Depression and the global conflagration it set off, and found government protection beneficial for more and more?
Buchanan chose an area of economics not surprising for a libertarian seeking a job in a southern public university: public finance, which focuses on the proper role of government in the economy. It encompasses taxation, government spending, and the relationship between the public and private sectors, matters on which southern officials had firm convictions.41 When he set to work, the primary focus of scholars in this area was “market failure”: situations in which for-profit enterprises failed to allocate goods or services efficiently or fairly, thus requiring government action to correct the problem.
He chose to build a career by turning a critical eye the other way: identifying and analyzing perceived “government failure,” so as to make the case that it should not be relied on by default without a sophisticated evaluation of its drawbacks. That was an innovative approach at the time and, on the face of it, a sensible one. Why simply assume government could do better? Yet empirical comparison never interested Buchanan or the school he founded. Where his interest and genius lay—even if you call it an evil genius—was in his intuitive grasp of the importance of trust in political life. If only one could break down the trust that now existed between governed and governing, even those who supported liberal objectives would lose confidence in government solutions.42
Having developed a reading knowledge of German, French, and Italian, Buchanan reached overseas for new ideas and tools in what he knew would be a major political struggle. One day in 1948, while roaming the stacks of the University of Chicago’s well-stocked library, Buchanan found a half-century-old dissertation written in German by a nineteenth-century Swedish political economist named Knut Wicksell. Economists, Wicksell argued, should stop offering up policy advice to leaders they imagined as “benevolent despots” who could act on behalf of the public good. Instead, scholars should assume that public officials had the same self-interested motives as other economic actors and go on to scrutinize the actual operational rules, practices, and incentives that created the framework of government and bureaucratic decision-making. Buchanan came to call the approach he derived from Wicksell “politics without romance.” It was a career-making find, he would later say, because most of his own contributions were “reiterations, elaborations, and extensions” of what Wicksell had first identified.43
This may in fact be true. For example, Wicksell articulated the notion that tax policy ought to be arrived at through unanimous consent. “It would seem to be a blatant injustice,” he wrote, “if someone should be forced to contribute toward the costs of some activity which does not further his interests or may even be diametrically opposed to them.”44 In Harry Truman’s Fair Deal America, marginal tax rates on higher incomes were creeping upward, and—aside from the emerging Cold War, which accounted for a goodly share of the budget—that revenue paid for projects the wealthiest were less likely than other citizens to support, from the Tennessee Valley Authority, which brought electricity to the rural poor, to factory inspectors to ensure fair labor standards. Buchanan found a way of thinking about fairness in Wicksell’s work that matched his own inclination as a ma
n of the midcentury right (which was ironic, because Wicksell was a man of the left who had in mind disenfranchised wage earners who were being taxed for the projects of a monarchical government in which they had no vote). Wicksell’s ideas, Buchanan later said, “seemed to correspond precisely with those I already had in my head” but “would not have dared to express in the public-finance mindset of the time.”45
Among Europeans, he was finding career-making support for other ideas he already had. For the 1955–56 academic year, Buchanan secured a Fulbright Fellowship to Italy, where he studied the works of a public finance tradition suspicious of—indeed, hostile to—central government and taxation, owing to a long history of corruption. Living in Rome and Perugia, he steeped himself in Italian theories of the state and the processes of political decision-making that determined taxation. By year’s end, he said, he “suddenly ‘saw the light.’” The new light notably resembled the old dogma of the southern-state “Redeemer” governments that had put an end to Reconstruction, although Buchanan did not comment on the similarity, whether or not he perceived it. He had found theoretical anchors for both sides of his fiscal inclinations: to curtail taxation and contain government spending. “Pay as you go” was both economically wise and morally just, Buchanan concluded in his first book. He took his stand alongside “the much-maligned man in the street,” who compared national budgets to household ledgers and abhorred red ink in either. A government forced to balance its books every year, he believed, would act more like the nineteenth-century federal government and the southern states whose ongoing tightfisted policies he equated with economic liberty.46
Left unspoken was how that framework appealed to the more right-wing members of the propertied class by keeping their taxes low and denying basic services—schools, roads, and sanitation—to those who could not pay for them. After early jobs at the University of Tennessee and then at Florida State University, Buchanan got the break of his career in 1956: a post at the University of Virginia, as the new chairman of the economics department. To his delight, the department also hired Warren Nutter, the fellow graduate student with whom he had talked about setting up a philosophically grounded program almost a decade before. With the help of Nutter and a steadily growing number of others at UVA, Buchanan would be able to turn a regional libertarian creed into a national counterrevolution.
CHAPTER 3
THE REAL PURPOSE OF THE PROGRAM
It was the chance of a lifetime. The university founded by Thomas Jefferson himself was giving the new chair of the economics department “full rein” to create a kind of program that existed nowhere else. At a time when the discipline of economics, in James Buchanan’s words, “threatened to become extremely boring,” his new employer entrusted him and Warren Nutter to chart a new course.1
The private mission statement for the Thomas Jefferson Center for Political Economy and Social Philosophy that Buchanan submitted to university president Colgate Darden in December 1956 made a lot of promises. It promised to be guided by two traditions: that of the “old-fashioned libertarians” whose ideas encouraged laissez-faire economic policies in nineteenth-century England and America, and that of “the Western conservatives,” who feared the “revolt of the masses,” as the title of one text put it, and sought new ways to ensure “social order.” The document also made clear who would “not be allowed to participate”: anyone who, even inadvertently, would value “security”—the New Deal’s mantra—above liberty, and who would “replace the role of the individual and of voluntary association by the coercive powers of the collective order.” The latter would include supporters of industrial unions and government intervention in the economy. Buchanan, by contrast, pledged to train “social philosophers,” men (for the university admitted only men then) ready to put into effect a society based on liberty. With a hint of defensiveness, knowing that such exclusiveness was, indeed, unusual in an academic enterprise, he assured: “To start in a small way to produce such a line of new thinkers is an eminently legitimate endeavor for a great university.” The center’s members, Buchanan vowed, would take up such matters of concern to Virginia’s governing elite as the growing power of labor unions; the correct relationship between the federal government and the states (made all the more urgent by Supreme Court decisions such as Brown); what he depicted as the “problems of equalitarianism” (among them “income redistribution,” “the welfare state,” and “the tax structure,” his archaic way of speaking of egalitarianism an indicator of how his program would approach them); and “the social security system and [its threat to] individual initiative.”2
More specifically, the center aimed to combat what its founders referred to as “social engineering” by changing the way people thought. They hoped to break “the powerful grip that collectivist ideology already had on the minds of intellectuals,” as Buchanan later put it.3 Almost all professional economists then accepted the pump-priming doctrines of Keynes to ensure demand to keep the economy growing. Nearly everyone, even as they differed on the particulars, believed that in the age of the giant corporation, America needed what the liberal economist John Kenneth Galbraith had recently termed “countervailing power”: organized workers and consumers. The federal government must also put its weight on the other side of the scale to ensure fair play and economic stability. Put simply, most Americans then trusted their government. In such an era, Buchanan said, “our purpose was indeed subversive.”4
Darden knew precisely what Buchanan meant by “collectivist” solutions to social problems. His father-in-law was Irénée du Pont, the former president of the DuPont Company and one of the nation’s wealthiest men. He was also among the most right-wing of the rich. Du Pont so hated FDR that he had helped found the American Liberty League, in hopes of restoring an “employers’ paradise” by nipping the New Deal in the bud. But he and his corporate colleagues had muffed the job. Their arguments were so crude and self-interested that their mobilization redounded to the president’s advantage, enabling him to denounce the millionaires as “economic royalists” bent on keeping others down.5
Colgate Darden was less vocally right-wing than his father-in-law, but he shared his new hire’s disdain for how powerful labor unions, civil rights organizations, and others were looking to the federal government to bring about what they depicted as social justice. As a congressman, Darden himself had voted against a core component of “collectivism”: the Social Security Act.6 Darden understood—indeed, could recite chapter and verse of—the mantra of right-leaning business leaders regarding the encroachments of the federal government into their private business affairs. To their minds, they, not the federal government or their employees, had made the U.S. economy into a world powerhouse. It made them irate to be taxed—at higher rates than others, no less—for programs they viewed not only as bad for the economy but also as infringements on their personal liberty. How dare federal officials tell them how to manage their employees? Why should they pay into unemployment and retirement funds to support those who failed to save in personal accounts? Such matters should not be the business of the federal government. They were for men of property to decide as they saw fit.7
But unlike the aging du Pont, Darden had been exposed to the often brilliant arguments for the other side while earning his J.D. in the early 1920s at Columbia Law School in New York City. There, northern legal scholars were systematically and thoughtfully undercutting the radical free-market doctrines espoused by elite-dominated courts after the defeat of Reconstruction, while laying the conceptual foundations for the judiciary’s acceptance of new federal powers in response to the Great Depression. “All realists shared one basic premise—that the law had come to be out of touch with reality,” writes their leading historian. In the age of the large corporation, the notion that the economy was a realm of freedom, whereas government action was intolerable coercion, simply no longer corresponded to the facts of American life. Massive struggles on the part of workers and farmer
s had repeatedly belied that stark opposition, and the new century’s leading thinkers in the social sciences and history had refuted the Gilded Age ideology that unalloyed property rights and freedom of contract could ensure liberty and justice for all.8
By the time Buchanan arrived in Virginia in the mid-1950s, this breaking with the past to master a new reality, this refutation of the late-nineteenth century ideology of the sanctity of private property rights and the concomitant embrace of an affirmative role for organized citizens and their government as the counterbalance to corporate power, had become the new stance of virtually every Western democracy. Faculty at institutions such as Columbia, the University of Wisconsin, and Harvard produced a steady stream of sophisticated and densely empirical arguments to construct the intellectual foundations upon which modern liberalism in all its forms would depend. Such university-based researchers had urged, and sometimes even helped design, policies ranging from the New Deal’s requirement that employers bargain in good faith with duly chosen representatives of their workers to the creation of Social Security and unemployment compensation and, most recently, the court’s ruling that segregated public schools were “inherently unequal” and thus a violation of the equal protection clause of the Fourteenth Amendment to the Constitution.9
Buchanan understood the authority and commitment of those whose arguments he set out to counter. But having had his fill of Ivy League northerners in the Navy, he was unafraid. He relished the opportunity to build a team of intellectuals who would develop political-economic arguments to “preserve a social order based on individual liberty” and thereby lay the groundwork for an intelligent pushback against federal power. The economist’s vision meshed almost perfectly with what Virginia’s elite sought, while avoiding the pitfalls. Buchanan never mentioned race in outlining his program, for example. He named his center the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy, after UVA’s founder, noting privately in his précis to the president that the venture needed an innocuous name that would not draw attention to its members’ “extreme views . . . no matter how relevant they might be to the real purpose of the program.”10
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