Tuesday, 15 January 2019

What should Knightean economists do?

Although Milton Friedman and Arnold Harberger became involved with Pinochet's Chile in the mid‐1970s, an increasingly influential body of scholarship argues that James M. Buchanan was similarly eager to provide Pinochet's dictatorship with advice. Buchanan reportedly had a heavy influence on the development of Chile's 1980 Constitution and similarly helped to design Chile's binomial electoral system. Buchanan's seeming willingness to advise Pinochet's dictatorship provides a stark contrast to his longstanding advocacy of Frank Knight's view that democracy is “government by discussion” and Buchanan's oft‐repeated insistence that democratic consensus trumps economic expertise. This article draws upon a wealth of largely ignored archival evidence and Chilean primary source material to engage and evaluate whether Buchanan—a Knightian economist par excellence—abandoned his advocacy of “government by discussion” and provided early 1980s advice that helped Pinochet's regime of “institutionalized terror” (Valdes 1995, p. 30) design a constitution that would chain any subsequent Chilean democracy.
So what happened?

Buchanan was invited by the Dean of Universidad Técnica Federico Santa Maria Business School, Carlos Cáceres, for the school's 25th anniversary.
Although Buchanan subsequently told Cáceres that the “tentative arrangements that you suggest for the visit seem fully satisfactory to me” (February 25, 1980), there is no evidence to indicate whether Buchanan was initially aware that Cáceres was a member of the Council of State—an advisory body created in early 1976—which met between November 1978 and July 1980 to review the earlier Anteproyecto de Constitución Política (Preliminary Draft Political Constitution) that the Ortúzar Commission had submitted to Pinochet in October 1978 (Barros 2005, p. 174).

MacLean (2017) suggests that the “wicked genius of Buchanan’s approach to binding popular self-government was that he did it with detailed rules that made most people’s eyes glaze over” (p. 159). By contrast, the relatively brief set of outline notes that Buchanan drafted shortly before he traveled to Chile signify that Buchanan thought it “Difficult to know what to talk about … [but I] Propose to do more or less what I did at a lecture in Lisbon, Portugal in November, 1978 … [i.e., provide a] general summary of ‘An Economic Theory of Political Constitutions’” (Chile Lectures 04/28/80, BHA). Although Buchanan noted that “My own work has been, and is, in this, also relevant to Chile (as to Portugal). … ‘Politics without Romance’ … Stick to constitutional issues” (p. 1), he similarly noted the “Influence and importance of Wicksell (on me, on others) … Top rank … Wicksell’s warning to economists [i.e., not provide policy-advice] … Look instead at institutions. How they work” (BHA).18

According to MacLean (2017), Buchanan provided his Chilean hosts with a wealth of
“detailed advice on how to bind democracy, delivered over the course of five formal lectures [Buchanan only gave four lectures to Chilean audiences] to top representatives of a governing elite [e.g., the undergraduates at UTFSM] that melded the military and the corporate world” (pp. 158). In particular, MacLean’s (2017) narrative places much weight on Buchanan’s May 8 lecture to the approximately 250 “government representatives, business people, university professors, and executives” (Que Pasa, May 1980, p. 17) who attended the “Open Lecture and Panel” on “Economics and Public Choice.”

Buchanan’s draft lecture notes (initially written for his May 5 lecture to UTFSM undergraduates and barely revised before he gave his subsequent lecture at the Hotel Carrera Sheraton) signify that his May 5 and May 8 lectures—both titled “Economics and Public Choice”—provided his UTFSM and Hotel Carrera audiences with a substantively identical and fairly basic overview of public choice and constitutional economics.19 Similarly, Buchanan’s notes for his May 6 lecture at the Chilean Naval Academy show that he provided his audience with a basic outline of public choice theory and welfare economics which included a brief overview of the “History” and “development” of the theory of rent-seeking (“Tullock, Posner, Krueger … Export licenses, import. Turkey, India”) and a basic account of the theory of bureaucracy provided by “Tullock, Downs, Niskanen … Bureaucrats and budgets—government growth” (BHA).20
Farrant goes on to note that while MacLean holds Buchanan responsible for Chile's binomial electoral system, "To my knowledge, Buchanan never wrote anything about the binomial electoral system over the course of his lengthy career, and he similarly appears to have made no mention of binomial representation in any of his May 1980 lectures in Chile."

I took Buchanan's Constitutional Political Economy course in 1999 and every graduate course in Public Choice on offer at GMU in the late 1990s and early 2000s. I went to pretty much every seminar at Buchanan House and at the Public Choice Center while there. I don't recall ever having heard the term 'binomial electoral system' before Farrant's article.

Cáceres was certainly no democrat, as Farrant shows. But it looks like Cáceres understood neither Buchanan's work on democracy, nor his constitutional views. And Buchanan's talks had little influence on the constitution then adopted:
Ultimately, the evidence signifies that Buchanan provided his various Chilean audiences with a series of lectures which were substantively similar to the analyses that he provided for any other late 1970s or early 1980s audience. Similarly, the evidence suggests that Buchanan’s May 1980 visit did not particularly influence the subsequent drafting of the Chilean Constitution.
And Buchanan learned a bit about Chile as well:
Ultimately, Cáceres and Ibáñez appear to have had scant grasp of the individualist-constitutionalist-contractarian-democrat—“terms that mean essentially the same thing to me” (Buchanan 1975, p. 7)—tenets of Buchanan’s social philosophy and political economy. As noted earlier, however, Buchanan self-confessedly had little knowledge about the Chilean economy, and he began his May 8 lecture at the Hotel Carrera by providing his audience with a relatively brief summary of his “Week” in Chile. In particular, Buchanan told his audience that he had “Learned more than you have,” and he subsequently told Cáceres that “As I said several times, I learned a great deal” (Buchanan to Cáceres, May 12, 1980). Importantly, Buchanan appears to have learned
much about the anti-democratic views of his Chilean hosts. Indeed, when Buchanan subsequently visited Chile in late 1981, he provided his MPS audience with a steadfast defense of universal suffrage, and publicly upbraided a number of European and South American MPS advocates of the “naïve belief that dictatorships are the only or the best way of establishing a free economy.” Similarly, Buchanan told his MPS colleagues—Cáceres and Ibáñez included—that the MPS had a “moral obligation” to “look for ways of improving democracy” (El Mercurio, November 22, 1981, p. D4).56
The whole article's well worth reading. Here's a Sci-Hub link. Hayek's views on Chile were not admirable, and are discussed.

Farrant concludes:
Consequently, I ask how an advocate of Knight’s view that democracy is fundamentally equivalent to “government by discussion” might best respond when they receive an invitation to visit a country ruled by a dictator. The easy answer is “not go,” but Buchanan accepted Carlos Cáceres’ invitation and subsequently visited Chile in May 1980. Thus I ask what exactly does a self-avowed Knightian economist do when they visit a country ruled by a dictator.62 Do they provide policy advice? Do they meet with the dictator? Do they design a constitution? The available evidence suggests that Buchanan’s answer to the “Frank Knight—dictatorship” question was to do exactly what he would do in a late 1970s classroom in Blacksburg or lecture hall in London.

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