Normative and positive theories of public finance: contrasting Musgrave and Buchanan

Abstract

This paper assesses James M. Buchanan's claim of following a positive approach in stark contrast to the normative approach to public finance of Richard A. Musgrave. The goal of this paper is to shed light on the foundations of modern American public finance by analysing one aspect of the methodology of its two most prominent fathers. I show (1) that it is difficult to distinguish Musgrave's and Buchanan's theories of public goods along the positive/normative dividing line and (2) that Buchanan's theory can also be considered normative. In the first three parts, I follow the Weberian methodological tradition in looking for value judgements in the theories, and by reflecting on the nature of ideal types. In the last part, I propose a broader interpretation of Buchanan's methodological stance within the academic context of the 1960s.

Keywords::

• R.A. Musgrave
• J.M. Buchanan
• public finance
• positive economics
• normative economics
• Max Weber

Jel Classification::

• B41
• B29
• H40

Acknowledgements

For helpful comments and suggestions, I would like to thank very much all the members of the Walras-Pareto Center, Melek Cihangir, Sophie Bisset, Beatrice Cherrier, Marie Léger-St-Jean and the participants of the 15th Summer School. I am also very grateful to the editors of the Journal and to two anonymous referees for insightful remarks on an earlier draft. I bear all responsibility for any error or disagreement that might remain.

Notes

A first version of this paper was presented at the 15th Summer School on History of Economic Thought, Economic Philosophy and Economic History (Lille, 2012).

^1. For a critical survey of the classical positions, see Hutchison (1964, Chapter 1) and Blaug (1992, Chapter 5), or the more recent encyclopaedia entry by Hands (2012).

^2. The ‘naturalistic fallacy’ is an expression coined by G.E. Moore in Principia Ethica (1903) to condemn attempts to reduce the good to naturalistic terms. Gordon (1976) used it as synonymous of a violation of Hume's prohibition of deducing ought statements from is statements. He criticized Buchanan (1975/1999) for deriving normative conclusions from an apparently positive theory.

^3. Weber (1917/1949, p. 10) writes: ‘Even if the teacher does not believe that he should deny himself the right of asserting value judgments, he should make them absolutely explicit to the students and to himself.’

^4. Weber (1917/1949, p. 45) writes:

[N]on-evaluativeness, in the sense presented above, is on the contrary presupposed by every purely scientific analysis of politics, particularly of social and economic policy. It would be superfluous to repeat that it is obviously possible and scientifically useful and necessary to establish propositions of the following type: in order to attain the end x (in economic policy), y is the only means, or under conditions b1, b2 and b3, y1, y2, and y3 are the only or the most effective means. I should be emphatically recalled that the possibility of the exact definition of the end sought for is a prerequisite to the formulation of the problem. Hence it is simply a question of inverting causal propositions; in other words, it is a purely technical problem.

^5. At least this is the standard interpretation as Musgrave (1957, 1959) himself presented it.

^6. This finding of implicit value judgement to close the model relates to a broader criticism of Buchanan by McCloskey (2011). She argues that Buchanan, among other contractualists, cannot design a stable and sustainable constitutional political economy of flourishing human beings out of homo economicus agents. The virtue of prudence is not sufficient to allow the construction to exhibit the desired features – a broader set of ethical assumptions (virtues) is required: ‘You have to put the rabbits into the hat if you are going to pull them out’ (McCloskey, 2011, p. 7).

^7. ‘L'économie pure […] a choisi une norme unique, soit la satisfaction de l'individu, et a établi qu'il est l'unique juge de cette satisfaction’ (my translation). Quoted by Desreumaux (2009, p. 78)

^8. Recall that Musgrave worked as an applied economist at the Federal Reserve for 7 years before writing his Theory. Although he dismissed the idea of building a theory that could explain the details of what is going on in public administrations, I see the concept of merit goods as an abstraction of some essential functions of the state that cannot be dismissed if the theory is to be of any use at all. As Musgrave and Musgrave (1984/2007) put it: ‘A realistic view of the fiscal scene cannot avoid the many instances where policy seems to interfere with rather than respond to individual preferences.’

^9. This conclusion could be contested if one thinks of Musgrave's theory in a broader social framework, but I will not follow this line of argument here since it would take me too far from the aim of this paper.

^10. Weber says that ‘normative correctness’ is not an essential feature of ideal type constructions. For example, a type can be constructed ‘in terms of a rational orientation to an absolute value’ (Weber, 1921/1947), though he also says that in economy, the types are more often constructed in an end-oriented rationality which makes them ‘normatively correct’.

^11. Something that was clearly stated by Weber (1904/1949, p. 51):

We all know that our science, as is the case with every science treating the institutions and events of human culture, (with the possible exception of political history) first arose in connection with practical considerations. Its most immediate and often sole purpose was the attainment of value judgments concerning measures of State economic policy.

This point is also stressed by Brochier (1995, 1997).

^12. Paul A. Samuelson Papers at Duke University; Box 31, Ford Foundation 1955–1969. Reproduced in Documents of the Controversy of the Thomas Jefferson Center, Presented by David M. Levy and Sandra J. Peart at the 14th Summer Institute for the History of Economic Thought at the University of Richmond, 14th June 2013.