STUDIES IN PUBLIC CHOICE studies in Public choice VOl. 1 Editor: Gordon Tullock The intersection of economics and 'Politics The intersection of economics and politics is one of the most important areas of modern social science. Public Choice, as a journal, and the series, Studies in Public Choice, are devoted to a particularly important aspect of this intersection, the use of economic methods on matters which are traditionally political. Prominent scholars, such as Duncan Black, Kenneth Arrow, Mancur Olson, Vincent Ostrom, and James Buchanan, have con tributed to the development of the study of public choice; notably some were originally economists and some political scientists. The journal Public Choice (now in its twelfth year) and the monograph series are devoted to furthering the growth of knowledge in this important and fascinating field. Fiscal responsibility in constitutional democracy James M. Buchanan and Richard E. Wagner Virginia Poly technical Institute and State University Social Sciences Division c:Nfartinus~ijhoff GLeiden 1978 I~oston Distributors for North America Kluwer Boston, Inc. 160 Old Derby Street Hingham, MA 02043 USA ISBN 978-1-4684-7127-4 ISBN 978-1-4684-7125-0 (eBook) DOT 10.1007/978-1-4684-7125-0 Copyright @ 1978 by H. E. Stenfert Kroese B. V., Leiden Softcover reprint of the hardcover 1st edition 1978 No part of this book may be reproduced in any form by print, photoprint, microfilm or any other means, without written permission from the publisher v PREFACE This volume contains the papers, along with the discussant's re marks, presented at a conference on 'Federal Fiscal Responsibility', held at The Homestead, Hot Springs, Virginia, on 26-27 March 1976. Additionally, we, the editors, have included an introductory essay which sets forth some of our background thoughts that in formed our organization of the conference and which also de scribes some of our reactions to the conference. This conference was sponsored by the Liberty Fund, Inc. of Indianapolis, Indiana, which incorporated this conference into its overall program directed toward the study of the ideals of a free society of responsible individuals. Related to this effort, the Liberty Fund also assisted in supporting research on Democracy in Deficit: The Political Legacy of Lord Keynes, by James M. Buchanan and Richard E. Wagner (New York: Academic Press, 1977). Both Democracy in Deficit and the conference were de signed to examine one important aspect of the Liberty Fund's general set of concerns, namely the' way in which political con siderations influence the macroeconomic aspects of budgetary policy, thereby, in turn, influencing the future of American liberty and prosperity. We are most grateful to the Liberty Fund for their efforts, and we are pleased that Enid Goodrich, William Fletcher, Neil McLeod, and Helen Schultz of the Liberty Fund were able to attend the conference. The organization of the conference was handled through the Center for Study of Public Choice, specifically through the cheerful VI PREFACE and capable efforts of Mrs. Betty T. Ross. For her graciousness and generosity, we are exceedingly grateful. This volume is pub lished in the Public Choice Monograph Series, and we are thank ful to Gordon Tullock, editor of the series, for his helpfulness. The general theme of Fiscal Responsibility in Constitutional De mocracy is, of course, quite pertinent to the theme of this series. CONFERENCE PARTICIPANTS VII Armen A. Alchian, University of California, Los Angeles William Breit, University of Virginia Martin Bronfenbrenner, Duke University James M. Buchanan, Virginia Polytechnic Institute and State University J esse Burkhead, Syracuse University Colin Campbell, Dartmouth College Otto A. Davis, Carnegie-Mellon University Marilyn R. Flowers, University of Oklahoma Donald F. Gordon, Simon Fraser University C. Lowell Hariss, Columbia University Thomas F. Johnson, American Enterprise Institute Charles Knerr, University of Texas at Arlington J. Clayburn LaForce, University of California, Los Angeles Abba P. Lerner, Queen's College, City University of New York William H. Meckling, University of Rochester David Meiselman, Virginia Polytechnic Institute and State University Michael E. Levy, The Conference Board, Inc. William A. Niskanen, Ford Motor Company Mancur Olson, University of Maryland Alan Reynolds, First National Bank of Chicago Warren J. Samuels, Michigan State University Wilson E. Schmidt, Virginia Polytechnic Institute and State University VIII CONFERENCE PARTICIPANTS Herbert Stein, University of Virginia Robert D. Tollison, Virginia Polytechnic Institute and State University Gordon Tullock, Virginia Polytechnic Institute and State University Melville J. Ulmer, University of Maryland Richard E. Wagner, Virginia Polytechnic Institute and State University Burton A. Weisbrod, University of Wisconsin Edwin G. West, Carleton University CONTENTS v Preface . . . . . Conference participants VII 1. Contemporary Democracy and the Prospect for Fiscal Control: Initial thoughts about and Final Reactions to the Conference James M. Buchanan and Richard E. Wagner . . . . . . . 2 Starving the Leviathan: Balanced Budget Prescriptions Before Keynes William Breit . . . . . . . . . . . . . . . . . .. 9 Comments Donald F. Gordon 24 E. G. West. . . 28 3. The Decline of the Budget-Balancing Doctrine or How the Good Guys Finally Lost Herbert Stein. . . . . " . . . . . . . . . . . . . 35 Comments Armen A. Alchian 53 Colin D. Campbell 55 4. Keynesianism: Alive, If Not So Well, At Forty Abba P. Lerner . . . . . . . . . 59 Comments Gordon Tullock 70 Melville J. Ulmer . 74 5 The Political Biases of Keynesian Economics James M. Buchanan and Richard E. Wagner 79 Comments William H. Meckling. 101 Mancur Olson. . . 106 6. Congressional Budget Reform: New Decision Structures Jesse Burkhead and Charles Knerr . . . . . 119 Comments C. Lowell Harriss . 145 Warren J. Samuels 151 x CONTENTS 7. The Prospect for a Liberal Democracy William A. Niskanen. . . . . . 157 Comments Martin Bronfenbrenner . 174 Robert D. Tollison . . 177