===== PAGE 1 =====

Ethics and Economic Progress. By James M.
Buchanan. Norman, Okla. and London:
University of Oklahoma Press: 1994.

work on ethics and economics. On the one hand, he views

ethics as subjective: he appeals to no external standards
that dictate to individuals what they ought to prefer. Thus, he
makes no attempt, in the present book, “to say just how much
‘should’ be saved, in the aggregate, despite the proposition that we
‘should’ save more than we do” (p. 35).

On the other hand, he refuses to leave individuals entirely to
their own devices. Quite the contrary, he has strong ethical views
of his own, which he does not hesitate to recommend. Here lies
the tension: if ethics is subjective, why are Buchanan’s recom-
mendations more than a reflection of his own tastes? In Ethics
and Economics, he launches an ingenious, though I think unsuc-
cessful, attempt to show that he can justify certain ethical pre-
scriptions without casting aside subjectivity of preference.

His argument proceeds as follows: If people increase their
hours of work, then, other things being equal, they will benefit
others as well as add to their own stock of goods. As people work
more, the market expands; this permits the division of labor to
proceed apace. Buchanan appeals here to Adam Smith, who
“advanced, as a general principle, the notion that the division of
labor depends on the extent of the market” (p. 15). Those who
labor generate positive externalities for others, but not so those
who withdraw into idleness.

If increased work leads to such benefits, a further question
arises: How may individuals should be induced to accept the

A line of tension runs through much of James Buchanan's

David Gordon is a senior fellow at the Ludwig von Mises Institute and book
review editor for the Review of Austrian Economics.

The Review of Austrian Economics Vol.8, No. 2 (1995): 137-140
ISSN 0889-3047

137


===== PAGE 2 =====

138 The Review of Austrian Economics Vol. 8, No. 2

gospel of work? Buchanan looks to the Puritan ethic: if certain
virtues associated with the Puritans receive due attention in
popular moral education, the blessings of an expanded market lie
within reach. Thus, Buchanan can “suggest that individuals,
acting strictly in their own interest,” should follow the course of
action he advocates.

Buchanan's description of the Puritan ethic is in one respect
unusual. He remarks: “Much the same logic . . . could be
extended to those familiar precepts that call for honesty in
dealings, for promise keeping, for truth telling, for respect for
person and property, for sobriety, for tolerance. In short, we could
readily include the whole set of constraints summarized within
the rubric ‘the Puritan virtues’ ” (p. 79). The Puritans have rarely
been praised for their exceptional tolerance; Buchanan’s inclusion
of this trait as a Puritan virtue would surely surprise Roger
Williams. Fortunately, Buchanan’s slip leaves his main argument
unharmed.

That argument must face an obvious objection, one which
Buchanan knows full well. In a competitive economy, individuals
balance the benefits of labor and leisure as they wish. If someone
wishes to play golf rather than work an extra hour in his medical
consulting room, how can Buchanan say that he would be better
off, from his own point of view, if his preferences shifted?

Buchanan replies that the “basic neoclassical model,” on
which the objection just given rests, fails to apply to the case at
hand. In the neoclassical model, someone who works an increased
amount “receives precisely the value of the addition to the value
of product that the extra work generates” (p. 22). This holds true
only if inputs are assumed fixed; since the economy in fact grows
as labor time increases, the decision to work more benefits others
besides the worker himself.

Buchanan's point may be granted, but it fails adequately to
respond to the objection. Even if the person who works more does
generate positive externalities for others, the question remains:
is he better off, in his own eyes, after doing so? Unless the move
accords with his own preferences, the answer appears to be no.
The economy may be larger; but unless his share of goods rises
sufficiently to compensate him for his loss of leisure, he has failed
to benefit.

Buchanan notes and explores a tendency among economists
to take preferences as given. Although economists should con-
sider preferences for most purposes “relatively absolute abso-
lutes” (p. 76), this does not require them to abandon all questions


===== PAGE 3 =====

Book Review 139

of preference formation to the psychologist. Economists must be
free to analyze how changes in incentives alter preferences.

Once more Buchanan's point may be granted, and once more
the key objection remains without answer. However flexible or
subject to analysis an individual’s preferences may be, he cannot
be pried apart from the actual set of preferences he has. To say,
as Buchanan does, that someone would be better if he had other
preferences misses the point. For a consistent subjectivist, gains
or losses in utility can be assessed only against a set of prefer-
ences. Put bluntly, for the economist an individual is his set of
preferences. To compare someone’s actual utility with his utility
under different preferences stands on precisely the same footing
as an interpersonal utility comparison. If Buchanan thinks that
people should work more, or save more, these are ethical judg-
ments of his own, not the outcome of wertfrei economic analysis.
Insofar as he makes value claims, Buchanan is an ethicist or he
is nothing: tertium non datur.

Further, Buchanan has pushed his argument for more than it
is worth. Suppose he is right that increased work generates
positive externalities, while increased leisure does not. In like
manner, let us assume him correct on the benefits of saving
against spending, which he defends by an analogous argument.
Has he shown that individuals who wish for a more productive
economy should work rather than loaf, save rather than spend? 1
do not think so. He has at most shown an advantage of working
and saving against their respective alternatives. This hardly
suffices for an assessment of total benefits and total costs—one
advantage does not make an evaluation. Professional wrestling
exacts more physical demands than does teaching (except in the
inner cities); does it follow that teaching is ‘better’?

And is Buchanan correct that working more generates posi-
tive externalities? Yes; but on one condition. The “externalities”
add to utility only if consumed; as Adam Smith long ago pointed
out, the end of production is consumption.

This obvious truth does not show that Buchanan errs in
calling for more work and saving. But it limits the scope of his
conclusion: his analysis holds valid only if some people actually
consume the increases in productivity his Puritan virtues make
possible. (I omit here the complication of satisfaction just from an
increase in work—Puritanism with a vengeance). If they do not,
Keynes’s famous image of the capitalist cake growing ever-larger
but never being eaten, though false for nineteenth century Brit-
ain, will apply to Buchanan’s Puritan Commonwealth.


===== PAGE 4 =====

140 The Review of Austrian Economics Vol. 8, No. 2

One last step in Buchanan’s case requires a closer look. Sup-
pose, once more, that he is correct about the benefits of increased
labor. It does not follow at once that preaching the Puritan virtues
has been justified. This is so even if the preaching effectively
inculcates the desired values. Once more, Buchanan has not
considered the full picture: what has become of the costs imposed
by the training in Buchananite virtue? Buchanan tells us that he
was able to justify watching four professional football games in
one weekend only when he thought of the happy expedient of
cracking walnuts as he viewed the games. Thus he assuaged his
guilt about wasted time (pp. 7-8). The increased self-conscious-
ness and anxiety, what one might term the ‘internal Taylorism,”
that Puritan education seems liable to produce, must be weighed
against its good effects.

Buchanan’s short book includes an application of his ideas to
taxation policy and a criticism of personal service work, in which
the notion of increasing returns figures prominently. His original-
ity and ability to apply economic theory to new subjects inspire
respect and admiration; but I cannot think that his revamped
Moral Rearmament offers much promise.

David Gordon
Ludwig von Mises Institute