196

positive economics and Landsburg’s normative economics would have much

to recommend it.

B RYAN C APLAN, Department of Economics and Center for Study of

Public Choice, George Mason University, Fairfax, VA 22030, U.S.A.

Public Choice 106: 196–199, 2001

James M. Buchanan and Richard A. Musgrave, Public finance and public

choice: Two contrasting visions of the state. Foreword by Hans-Werner Sinn.
Cambridge: MIT Press, 1999, 272 pages. $27.50 (cloth).

This book is a transcript of papers and comments given at a conference at

Munich’s Ludwig-Maximilians University in 1998. After an introductory
chapter by Hans-Werner Sinn, Buchanan and Musgrave each have a chapter
describing the origins of their ideas on the role of the state. Then there
is a chapter by Musgrave on “Fiscal Tasks”, a chapter by Buchanan on
“Constraints on Political Action”, one by Musgrave on “Fiscal Federalism”
and one by Buchanan on “Morals, Politics, and Institutional Reform:
Diagnosis and Prescription”. Each chapter by one author is followed by a
discussion by the other, and then by discussion by others in attendance at
the conference. The volume is interesting and thought-provoking because it
deals with fundamental issues in public finance. While the volume deals with
many issues, ultimately they all pointed back toward questions about the
appropriate role of government in an economy. Readers will not be surprised
to find that compared to the status quo at the end of the 20th century,
Buchanan thought that government had grown too large, while Musgrave
thought the opposite. The interesting thing about this dialogue between
Buchanan and Musgrave is not the conclusions they reach but rather the logic
behind those conclusions. Reading the first two chapters, one has to be struck
by how fundamentally similar Buchanan’s vision of the justification for state
action is to Musgrave’s. Early in their careers, both began with the idea that
the state is an organization through which people can achieve collectively
those ends that they would not be able to achieve through individual action
or through the market, and they have continued to hold this view of the
state. Buchanan has written extensively about his contractarian vision of the
state, and Musgrave has argued from a different perspective the merits of
government action to enhance the well-being of its citizens. Musgrave makes
it clear that he buys into Buchanan’s contractarian vision of government as a
collective organization designed to undertake action for the well-being of the
group. Government action is necessary, both authors agree, because market
 197

activity cannot achieve some of the ends that are possible through collective
action.
Despite similar underlying visions regarding the justification of state ac-
tion, Buchanan and Musgrave differ substantially in their views on the role
that the state should play in economic affairs. The book’s discussion points
to two different sources of their differing views. First, as Buchanan (p. 88)
points out, Musgrave places more trust in the state than Buchanan. Second,
Buchanan and Musgrave have two different visions of the functions of the
state. Their differing views on the functions of the state are mentioned in the
volume, but could have been explored in more detail.
In his chapters, Musgrave draws on his familiar division of government
activities into the three branches of production, distribution, and stabiliz-
ation. Musgrave’s taxonomy makes it clear what he considers to be the
major functions of the state. Buchanan does not offer a similar taxonomy
that clearly categorizes all of the state’s functions, but does make a clear
distinction between the protective state and the productive or transfer state
(p. 84). Buchanan says that he never has understood Musgrave’s notion of
merit goods (p. 84), and argues that once we recognize the public choice
problems inherent in redistribution, the type of redistributional activity we
can expect from a democratic government is going to be significantly different
from what we might consider ideal. Thus, while Musgrave sees the primary
functions of the state as production, distribution, and stabilization, Buchanan
sees protection as a primary function, and questions the ability of the state to
undertake welfare-enhancing distribution because of the politics involved.
While Buchanan and Musgrave do not explore their differences more
deeply on the fundamental role of the state, it is interesting to note that,
for Musgrave, the production of national defense, police protection, and so
forth is justified to overcome a market failure in the same way as any other
government production, whereas for Buchanan the protection of rights is a
more fundamental part of government’s role. The differences go deeper, for
while thinking of protection as a public good prompts questions about the
optimal level of production along Samuelsonian lines, identifying the protect-
ive state as a prerequisite for productive activity, as Buchanan does, clearly
differentiates it from other government production. As Buchanan has argued
in the past, too small a protective state can produce a Hobbesian anarchy
where nobody can be productive, whereas giving the state too much power
to protect leads to a Leviathan that violates the very rights it is supposed
to protect. This is qualitatively different from just having too much or too
little of a public good. Thus, while Musgrave treats the production of national
defense, police, and courts and law as some of the many components of the
198

productive state, Buchanan separates the protective state from other public
production.
Buchanan goes further than this in his final essay, where he considers in
more detail the institutional foundation necessary for an orderly and product-
ive society. He discusses the importance of a moral order in which people
behave according to the norms of classical liberalism, and is concerned that
this moral order is eroding. One factor leading to its erosion, he argues, is
an increasing politicization of society. With market exchange, people have an
incentive to interact with each other for their mutual benefit, but in politics
there are incentives for opportunistic exploitation, leading to an erosion of
the moral order. Thus, one reason Buchanan argues for a scaling back of the
public sector is that it would strengthen the moral order that he believes is
eroding, and that he sees as necessary for a productive society.
Musgrave disagrees with much of Buchanan’s argument. Buchanan’s talk
about an eroding moral order paints a gloomy assessment of the Western
world which, Musgrave argues, is unwarranted. While the first half of the
20th century did have two world wars, the Holocaust, and Stalinist terror,
the second half of the century was a success story with no major wars, the
collapse of the Soviet Union, the containment of nuclear war, and an in-
creasing unification of Europe. Musgrave also cites the civil rights movement
and other advances for women and minorities as signs of increased public
morality – directly challenging Buchanan’s suggestion that public morality
has been eroding – and argues that government has played a critical role
in these social improvements. Furthermore, looking back to the Great De-
pression, Musgrave cites government success in the stabilization function of
government, a function Buchanan does not address, as additional evidence
on the benefits of government. Musgrave acknowledges that government has
grown substantially in the last half of the 20th century, but argues that we are
better off because of it.
In light of such fundamental differences, it is interesting to return to
Buchanan’s observation (p. 88) that a major difference between the two of
them is that Musgrave trusts politicians whereas Buchanan does not. (Mus-
grave did not comment on this observation, so we do not know whether
he agrees.) Of course, this would explain why Buchanan is so interested
in designing institutional constraints on actors in the political process, in
contrast to Musgrave’s concerns which are more along the lines of using
government to contain market failures and guide the economy. But it is also
interesting to note that, in reviewing the same record of the past century,
one author sees growing government as a prime contributor to our current
prosperity while the other sees it as a major threat to that same prosperity.
 199

In light of their different interpretations of recent history, one can see why
Musgrave would place more trust in politicians than Buchanan.
I have skipped over many of the details to focus on the big picture
because that is really what is so interesting about this volume. From a strictly
academic standpoint, scholars can see that Buchanan and Musgrave have
approached the study of the public sector in very different ways. This volume
shows how their different academic approaches have been shaped by, as
the volume’s subtitle says, two contrasting visions of the state. Typically,
research results are left to speak for themselves, and the influence of the
world views of the researchers on their work is left unanalyzed. This volume
does a great job of probing into the influence of the underlying views of
two influential economists on their work. The volume would have been
interesting had it focused on either Buchanan or Musgrave, but bringing
them together adds a lot. The contrast between them is interesting, and the
comments each has about the other adds much insight.

R ANDALL G. H OLCOMBE, Economics, Florida State University,

Tallahassee, FL 32306, U.S.A.