James M. Buchanan from Chicago to Virginia: Knight’s influence on Buchanan

In 1959 James Buchanan , Professor of economics and Chairman of the Department of Economics of the Virginia university decided to jointly author with Gordon Tullock a book on the rules of political choice in the context of a democratic fiscal and monetary constitution. Their swhich became The Calculus of Consent combined their closely related research perspectives on voting rules in collective choice to solve the dilemma between the unanimity rule that expresses the consensus of all individuals but implies a time consuming process (high transactions cost) to reach an agreement which may even be impossible to reach while the majority rule that avoids these problems may have the unintended consequence of oppressing the will and rights of the minority.

This paper examines the influence of Frank H. Knight’s work on Buchanan in his early period in Chicago, in the early 1950s in US (Florida) and as NATO fellow in Italy, and latterly in his years as Chairman of the Economics Department at the University of Virginia during the formative period of new school of public choice and its relationship to the development of Buchanan’s research enterprise of constitutional economics. We maintain that Knight’s two principles:

1. rules matter in the economic and political behavior of individuals whether acting in collective action or in markets, i.e. institutionalism in the proper sense of the word; and
2. ethics is relevant in explaining the behavior of the individuals in the market and politics.

Both of these Knightian precepts strongly influenced Buchanan thought. Knight’s influence occurred both in this formative period and afterwards, particularly in the latter part of his life. We also stress Knight’ influence on Buchanan as for the relevance in the catallactic approach to economics both at the level rules contracting and at the level of the market and social order and in public economy.

Key words: History of thought, Chicago school of economics, Virginia school of political economy.