Channels, Spring 2018

Channels • 2018 • Volume 2 • Number 2 Page 13 Public Principles and Economic Legacy Stanley Schwartz Business Administration— Cedarville University Introduction efore the crisis of stagflation in the 1970’s, Keynesian economics was at its peak of academic and popular strength. Paul Samuelson’s popularizing textbooks had brought the new macroeconomic model a widespread acceptance and broad application of its principles. In the field of public finance, this school favored a generally Panglossian assessment of public debt as not harmful to national budgeting because of the idea that “we owe it to ourselves.” As long as the nation’s citizens are the holders of its debt, issuing more does not decrease national wealth. At the same time, many Americans were skeptical of this justification of public debt. The popular perception was that government debt, like individual debt, subtracted from future revenue streams. Consumption now meant costs later. If this layman’s conception of public debt was correct, the Keynesian public finance practiced by the U.S. government indicated irresponsibility and a risk of serious financial problems in the future. Economist James Buchanan studied in Italy from 1955-56 and became steeped in its history and literature of public finance. 1 That year provided him with resources and ideas that developed some of his thoughts in public finance and led to the completion of a book, Public Principles of Public Debt , which challenged the Keynesian orthodoxy. 2 The responses to Buchanan’s work, followed by his ongoing contributions to the field, energized a debate which continued among the major participants into the 1970’s. Robert Barro’s entry into the conversation at that point renewed and reshaped the conflict, providing a new framework that is foundational for much of the recent work in the field. As a result of the turn toward Barro’s model, public finance today has again fallen into errors that James Buchanan demonstrated and sought to correct nearly 60 years ago. James Buchanan’s contributions to public finance, beginning with Public Principles of Public Debt and continuing with his integration of Public Choice, provide a foundational framework and corrective to error. This paper seeks to demonstrate that a revived understanding of Buchanan’s public finance work on public debt will be valuable for precise analyses moving forward. An examination of Buchanan’s key works and those of his opponents will show the power of his argumentation over time. This study will also demonstrate the versatility of Buchanan’s work in refuting multiple critiques and opposing models. Finally, a review of relevant current literature will conclude the paper with an understanding of how 1 R.E. Wagner, “James Buchanan’s public debt theory: a rational reconstruction,” Constitutional Political Economy , (2014) 25: 257. https://doi.org/10.1007/s10602-014-9161-3 2 Ibid, 257-258. B